Supporting the Growth and
Prosperity of Our Customers
and Communities.
2013 Annual Report
Small enough to know you. Large enough to help you.
Financial Highlights
(Dollars in thousands, except per share data)
SELECTED FINANCIAL CONDITION DATA
Total assets
Loans, net
Securities available for sale
Certificate of deposit
Other deposit accounts
Stockholders’ equity
Dividends paid per common share
Book value per common share
SELECTED OPERATING DATA
Net interest income
Net income
Basic earnings per common share
Diluted earnings per common share
SELECTED FINANCIAL RATIOS AND OTHER DATA
Performance ratios:
Return on average assets
Return on average equity
Interest rate spread
Net interest margin
Efficiency ratio
Equity to total assets
Non-performing assets to total assets
Allowance for loan losses to gross loans
Allowance for loan losses to total
non-performing loans
At or for the years ended
December 31,
2013
2012
$ 4,721,501
$ 4,451,416
3,402,402
1,017,790
1,120,955
2,111,825
432,532
3,203,017
949,566
1,253,229
1,761,964
442,365
$
$
0.52
14.36
$
$
0.52
14.39
$ 145,663
$ 150,439
37,752
1.26
1.26
$
$
34,331
1.13
1.13
$
$
0.82%
0.79%
8.73
3.25
3.37
50.64
9.16
1.14
0.93
64.89
7.99
3.50
3.65
50.73
9.94
2.21
0.97
34.62
About Flushing Financial Corporation
Flushing Financial Corporation (Nasdaq: FFIC), with
$4.7 billion in consolidated assets, is the holding company
for Flushing Bank, a New York State chartered stock
commercial bank insured by the Federal Deposit Insurance
Corporation. The Bank serves consumers, businesses,
and public entities by offering a full complement of
deposit, loan, and cash management services through its
17 banking offices located in Queens, Brooklyn, Manhattan,
and Nassau County. The Bank also operates an online
banking division, iGObanking.com®, which offers competitively
priced deposit products to consumers nationwide.
Dear Shareholder,
2013 was an important year in continuing on the trajectory of improved business performance
and growth that has helped our company move beyond the recent financial and economic
challenges in our marketplace.
While hurdles remain in the external environment,
Flushing Bank has built a solid foundation that is based
upon a personal and tailored approach to serving our
customers, rigorous risk management, a keen credit
focus, appropriate expense control and the ability to
leverage the latest technology. This foundation has
enabled us to deliver another year of strong operating
performance that was reflected in a 10% increase in
annual net income of $3.4 million to $37.8 million.
This led to a total shareholder return of 39% for 2013
and has been part of a 114% total return since 2008.
Helping to drive these results were record loan
originations of $836 million across all lines of
business, up 32.2% from 2012 and outstripping the
previous high mark established back in 2007. At the
same time, many analysts took positive note of our
credit metrics which showed substantive improvement
in non-performing, delinquent and classified loans,
reducing our fourth quarter provision for loan losses
to $1 million—the lowest quarterly provision since
the second quarter of 2008. We strongly believe that
producing higher originations across diverse lines of
business concurrent with improving credit quality is
the right formula for accelerating our future growth.
In addition to delivering outstanding financial results,
we are particularly proud that we were recognized by
Forbes magazine on their 2013 list of America’s 100
Most Trustworthy Companies. One of only 16 banks to
achieve this designation, this honor reflects both our
transparency and our consistency. Also noteworthy
has been our partnership with the Neighborhood
Housing Services of New York City, where we have
lent a helping hand to property owners still in need of
assistance in the aftermath of SuperStorm Sandy. We
remain steadfast in our commitment to serve the
communities in which we do business.
$4,143
$4,325
$4,288
$4,722
$4,451
2009
2010
2011
2012
2013
Total Assets
(in millions)
$39.7
$34.5
$35.1
$34.7
$26.4
2009
2010
2011
2012
2013
Core Net Income
(in millions)
Page 2 | Flushing Financial Corp.
Our branch network continues to be an important
component in achieving our strategic growth. We
are attuned to the role of the branch in the future
of banking. This is an area where we view ourselves
as having a competitive advantage because our
existing branches are situated in attractive markets
for our trade area but we are not burdened with an
overabundance of costly physical locations. As we look
towards future expansion, we will be thoughtful about
utilizing a smaller physical footprint and leveraging
technology to deliver a more efficient, but no less
effective, customer experience. To this end, we have
diversified our product offering to include mobile
banking and Flushing Bank Flexible Deposit™, which
allows customers to deposit checks remotely from
their mobile device.
One of the challenges that we continue to navigate
through is the constantly changing landscape of the
regulatory environment in which we need to operate.
New rules being written under the provisions of
the Dodd-Frank Act are likely to result in further
restrictions to lending. The most far-reaching of these
are the new capital requirements under Basel III,
which will limit lending as a consequence of requiring
higher regulatory capital levels. The good news is
that, based upon our preliminary assessment of the
proposed requirements, the Company and the Bank
presently exceed the fully implemented levels to be
considered “Well Capitalized.” As we are not alone in
these challenges, we work with our industry colleagues
to insure that we continue to advocate on behalf of
Flushing Financial Corporation - Total Return (%)
FFIC (+64.90%)
SNL U.S. Bank and Thrift (+42.97%)
80
60
40
20
0
-20
-40
$3,191
$3,146
$3,015
$3,233
$2,693
2009
2010
2011
2012
2013
Deposits
(in millions)
$3,200
$3,249
$3,199
$3,203
$3,402
2009
2010
2011
2012
2013
Net Loan Portfolio
(in millions)
Core net income excludes the after tax effect of any gains or losses
from balance sheet or corporate restructurings, net gains or
losses for financial assets and financial liabilities carried at fair
value, other-than-temporary impairment charges, net gains or
losses on the sale of securities, changes to income tax laws, non-
recurring items and merger related charges (as defined in the
GA AP to non-GA AP Reconciliation of Consolidated Statements
of Operations table provided in Exhibit 99.1 on the Company’s
current report on Form 8-K filed January 28, 2014).
Dec 2010
Dec 2011
Dec 2012
Dec 2013
Flushing Financial Corp. | Page 3
our customers and our shareholders to avoid the
unintended consequences of these changes.
We are very excited about what the future holds for our
business. We have built an exceptional team of people
and have demonstrated the ability to add quality talent
as opportunities arise. We have stayed the course on
our strategic objectives through very difficult times
and remain focused on increasing our lending
portfolio, managing expenses, developing programs to
retain and attract customers, exploring new business
niches and enhancing our information technology. Our
strong capital levels, ability to grow core deposits and
unwavering credit discipline all position Flushing Bank
uniquely well for what lies ahead in the New York
metropolitan market.
The brand that we have established through “Small
enough to know you. Large enough to help you.”
embodies the elements of being the top flight community
bank that we commit ourselves to be every day. It is
with sincere appreciation that we thank our Board of
Directors and Advisory Boards for their vision and
guidance. We are grateful to our employees for their
dedication and commitment and to our customers for
allowing us to serve them. And to you, our shareholders,
many thanks for your continued trust and support.
John E. Roe, Sr.
Chairman of the Board
John R. Buran
President and
Chief Executive Officer
Page 4 | Flushing Financial Corp.
In Memoriam
Gerard P. Tully, Sr.
1928–2013
On April 12, 2013 we received the sad
news that Gerard P. Tully, Sr., our former
Chairman passed away. Gerry Tully
served as Chairman of the Board of the
Company since its formation in 1994,
and as Chairman of the Board of the
Bank since 1980. He also served as Chief
Executive Officer of the Bank from 1981
through 1989. In 2011 the Board elected
Gerry Chairman Emeritus. He continued
to remain on the Board until his passing.
“We will be forever grateful to Gerry for
his dedication and service to Flushing
Financial Corporation and the Bank. His
exceptional contributions to the Company
and the Bank spanned over 40 years.
Under his leadership, Flushing Financial
converted to a public company and the
Bank has grown from a small community
bank to a well-capitalized commercial bank
with $4.7 billion in assets. It has been
our privilege to work with Gerry over the
years. His counsel and leadership will be
greatly missed.”
Focused on the communities we serve
Small enough to know our community
Flushing Bank is small enough to know our customers by name and give them the personalized
attention they deserve. As a community bank, we look to connect with existing and potential
customers on a local level while adding value to their everyday banking experience.
Large enough to help our community
Flushing Bank is large enough to help our customers by providing a comprehensive set of products
and services tailored to fit their individual or business’ needs. We will continue to build trust, expertise,
and brand recognition within the markets we serve.
Community Focus
Flushing Bank has always recognized the importance of our role in the community. We take the time
to understand the needs of the customer, and find simple, easy, streamlined solutions. Our lending
activities and retail branch network are centered in the New York City metropolitan area. We
embrace the ethnic and cultural diversity and variety of businesses that make this area so unique
and are committed to serving these communities. This approach has enabled the Bank to establish
its reputation as a consistent financial services provider for a diverse set of individual, business and
real estate customers.
Flushing Financial Corp. | Page 5
Solutions to meet the needs of our customers
Performance Driven
Originally established as a state-chartered savings bank, Flushing Bank has grown into a diverse
and well-capitalized financial institution. We focused this past year on new loan originations, expense
management, and product and services diversification. We worked toward our strategic goals while
remaining flexible and reacting quickly to market changes that affected our business. The end result
was another strong year for our Company including an increase in net income and an improvement
of all credit metrics.
Custom Solutions
Providing timely, innovative and flexible solutions that meet the changing financial needs of our
customers is of the utmost importance to Flushing Bank. It requires a team that understands their
customers’ needs and has the skills, knowledge and expertise to make it happen.
Internet Banking
The anywhere, anytime nature of the Internet has changed the way people conduct business and
their expectations of banks. Customers expect to have access to their accounts when and where
they need it. We continue to enhance our Internet banking platform with online and mobile solutions
that evolve with the latest technology. The Internet continues to provide a forum to efficiently test
various value propositions to multiple market segments without impacting the Flushing Bank brand.
Internet banking—specifically iGObanking.com®—also allows us to source deposits from outside the
footprint of our retail branch network while delivering relevant value.
Page 6 | Flushing Financial Corp.
Services to support growth and prosperity
Business Banking
We are a business bank that is small enough to give our customers the individual attention they need,
but large enough to offer a full line of business banking services. Our comprehensive Business
Banking product set includes lines of credit, term loans, owner-occupied commercial real estate
mortgages and SBA loans. We can also provide our customers with the liquidity to accept new
business, grow international sales, and compete more effectively in the international marketplace
through the Working Capital Guarantee program.
Real Estate Lending
A community-based lending approach coupled with a prudent lending philosophy has enabled the
Bank to grow its multi-family and mixed-use portfolio, while maintaining high credit standards. Our
Commercial Real Estate loan portfolio is diverse, consisting of shopping centers, professional office
buildings, community service facilities and other essential income-producing commercial properties
that are vital to the economic environment of the communities we serve.
Government Banking
The Government Banking Team at Flushing Bank was established for the sole purpose of serving
public entities and is dedicated to building strong relationships with municipalities and school districts
across the New York area. Government Banking offers a full suite of cash management products
and investment accounts to help maximize revenues.
Flushing Financial Corp. | Page 7
Specializing in niche markets
Retail
Our Retail branch system remains focused on building and expanding relationships with our customers.
We continue to enhance our product offerings to provide a full array of financial solutions designed
to meet the changing needs of our business and consumer clients. We have also crafted a number
of tools that provide both time-efficient and cost-saving solutions for effective money management.
We believe that our size provides a unique vantage point in that we are small enough to know our
clients and large enough to help them realize their dreams.
Multicultural/Ethnic
Flushing Bank has distinguished itself as a leader in serving multicultural markets. A significant
percentage of our branches are located in the borough of Queens, New York, which is considered
the most diverse county in the United States. Our branches are staffed with seasoned banking
professionals that are able to communicate in the languages and dialects prevalent in the community.
We translate marketing campaigns and advertise in publications that reach these communities and
sponsor many cultural and charitable events.
Page 8 | Flushing Financial Corp.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
Commission file number 001-33013
FLUSHING FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
11-3209278
(I.R.S. Employer Identification No.)
1979 Marcus Avenue, Suite E140, Lake Success, New York 11042
(Address of principal executive offices)
(718) 961-5400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock $0.01 par value (and
associated Preferred Stock Purchase Rights)
(Title of each class)
Securities registered pursuant to Section 12(g) of the Act: None.
NASDAQ Global Select Market
(Name of exchange on which registered)
Act.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in rule 405 of the Securities
Yes X No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Act.
Yes X No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,
if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). X Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of
this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer___
Non-accelerated filer____
Accelerated filer X
Smaller reporting company __
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
X No
As of June 28, 2013, the last business day of the registrant’s most recently completed second fiscal quarter; the
aggregate market value of the voting stock held by non-affiliates of the registrant was $471,117,000. This figure is based
on the closing price on that date on the NASDAQ Global Select Market for a share of the registrant’s Common Stock,
$0.01 par value, which was $16.45.
The number of shares of the registrant’s Common Stock outstanding as of February 28, 2014 was 30,249,341
shares.
Portions of the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 20,
2014 are incorporated herein by reference in Part III.
DOCUMENTS INCORPORATED BY REFERENCE
i
TABLE OF CONTENTS
PART I
Page
Item 1. Business..................................................................................................................................... 1
GENERAL
Overview................................................................................................................................ 1
Market Area and Competition ............................................................................................... 5
Lending Activities ................................................................................................................. 5
Loan Portfolio Composition ........................................................................................ 5
Loan Maturity and Repricing ...................................................................................... 9
Multi-Family Residential Lending ............................................................................ 10
Commercial Real Estate Lending .............................................................................. 10
One-to-Four Family Mortgage Lending – Mixed-Use
Properties................................................................................................................... 11
One-to-Four Family Mortgage Lending – Residential
Properties................................................................................................................... 11
Construction Loans.................................................................................................... 12
Small Business Administration Lending ................................................................... 13
Taxi medallion........................................................................................................... 13
Commercial Business and Other Lending ................................................................. 13
Loan Extensions, Renewals, Modifications and
Restructuring ............................................................................................................. 13
Loan Approval Procedures and Authority................................................................. 14
Loan Concentrations.................................................................................................. 14
Loan Servicing........................................................................................................... 15
Asset Quality ....................................................................................................................... 15
Loan Collection ......................................................................................................... 15
Troubled Debt Restructured ...................................................................................... 16
Delinquent Loans and Non-performing Assets ......................................................... 16
Hurricane Sandy ........................................................................................................ 18
Other Real Estate Owned .......................................................................................... 18
Investment Securities................................................................................................. 18
Environmental Concerns Relating to Loans .............................................................. 18
Classified Assets........................................................................................................ 18
Allowance for Loan Losses ................................................................................................. 21
Investment Activities ........................................................................................................... 25
General ...................................................................................................................... 25
Mortgage-backed securities....................................................................................... 26
Sources of Funds.................................................................................................................. 29
General ...................................................................................................................... 29
Deposits ..................................................................................................................... 29
Borrowings ................................................................................................................ 33
Subsidiary Activities............................................................................................................ 34
Personnel.............................................................................................................................. 35
Omnibus Incentive Plan....................................................................................................... 35
FEDERAL, STATE AND LOCAL TAXATION................................................................................. 35
Federal Taxation .................................................................................................................. 35
i
General ...................................................................................................................... 35
Bad Debt Reserves .................................................................................................... 35
Distributions .............................................................................................................. 35
Corporate Alternative Minimum Tax ........................................................................ 36
State and Local Taxation ..................................................................................................... 36
New York State and New York City Taxation .......................................................... 36
Delaware State Taxation............................................................................................ 37
REGULATION..................................................................................................................................... 37
General................................................................................................................................. 37
The Dodd - Frank Act.......................................................................................................... 37
Basel III ............................................................................................................................... 38
Volcker Rule........................................................................................................................ 38
New York State Law............................................................................................................ 39
FDIC Regulation.................................................................................................................. 40
Brokered Deposits ............................................................................................................... 42
Transactions with Affiliates................................................................................................. 42
Community Reinvestment Act............................................................................................. 43
Federal Reserve System....................................................................................................... 44
Federal Home Loan Bank System ....................................................................................... 44
Holding Company Regulations............................................................................................ 44
Acquisition of the Holding Company .................................................................................. 45
Federal Securities Law......................................................................................................... 45
Consumer Financial Protection Bureau ............................................................................... 45
Mortgage Banking and Related Consumer Protection Regulations..................................... 45
Available Information.......................................................................................................... 46
Item 1A. Risk Factors .......................................................................................................................... 46
Changes in Interest Rates May Significantly Impact Our Financial Condition and
Results of Operations...................................................................................................... 46
Our Lending Activities Involve Risks that May Be Exacerbated Depending on the
Mix of Loan Types ......................................................................................................... 47
Failure to Effectively Manage Our Liquidity Could Significantly Impact Our
Financial Condition and Results of Operations .............................................................. 48
Our Ability to Obtain Brokered Certificates of Deposit and Brokered Money
Market Accounts as an Additional Funding Source Could be Limited .......................... 48
The Markets in Which We Operate Are Highly Competitive.............................................. 49
Our Results of Operations May Be Adversely Affected by Changes in National
and/or Local Economic Conditions ................................................................................ 49
Changes in Laws and Regulations Could Adversely Affect Our Business.......................... 50
Current Conditions in, and Regulation of, the Banking Industry May Have a
Material Adverse Effect on Our Results of Operations .................................................. 50
Certain Anti-Takeover Provisions May Increase the Costs to or Discourage an
Acquirer.......................................................................................................................... 51
We May Not Be Able to Successfully Implement Our Commercial Business
Banking Initiative ........................................................................................................... 51
The FDIC’s Adopted Restoration Plan and the Related Increased Assessment Rate
Schedule May Have a Material Effect on Our Results of Operations ............................ 52
A Failure in or Breach of Our Operational or Security Systems or Infrastructure, or
Those of Our Third Party Vendors and Other Service Providers, Including as a
Result of Cyber Attacks, could Disrupt Our Business, Result in the Disclosure
or Misuse of Confidential or Proprietary Information, Damage Our Reputation,
Increase Our Costs and Cause Losses............................................................................. 52
ii
We May Experience Increased Delays in Foreclosure Proceedings.................................... 53
We May Need to Recognize Other-Than-Temporary Impairment Charges in the
Future.............................................................................................................................. 53
The Current Economic Environment Poses Significant Challenges for us and
Could Adversely Affect our Financial Condition and Results of Operations................. 53
We May Not Pay Dividends on Our Common Stock. ......................................................... 54
Goodwill Recorded as a Result of Acquisitions Could Become Impaired,
Negatively Impacting Our Earnings and Capital............................................................ 54
We May Not Fully Realize the Expected Benefit of Our Deferred Tax Assets................... 54
Item 1B. Unresolved Staff Comments ................................................................................................. 54
Item 2. Properties................................................................................................................................. 54
Item 3. Legal Proceedings.................................................................................................................... 54
Item 4. Mine Safety Disclosures.......................................................................................................... 54
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities ........................................................................... 55
Stock Performance Graph.................................................................................................... 57
Item 6. Selected Financial Data ........................................................................................................... 58
Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations ....................................................................................................................... 60
General................................................................................................................................. 60
Overview.............................................................................................................................. 61
Management Strategy ................................................................................................ 61
Trends and Contingencies ......................................................................................... 64
Interest Rate Sensitivity Analysis ........................................................................................ 67
Interests Rate Risk ............................................................................................................... 69
Analysis of Net Interest Income .......................................................................................... 69
Rate/Volume Analysis ......................................................................................................... 71
Comparison of Operating Results for the Years Ended December 31, 2013 and
2012 ................................................................................................................................ 71
Comparison of Operating Results for the Years Ended December 31, 2012 and
2011 ................................................................................................................................ 73
Liquidity, Regulatory Capital and Capital Resources.......................................................... 75
Critical Accounting Policies ................................................................................................ 77
Contractual Obligations ....................................................................................................... 78
New Authoritative Accounting Pronouncements ................................................................ 79
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............................................. 80
Item 8. Financial Statements and Supplementary Data ....................................................................... 81
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .......................................................................................................... 151
Item 9A. Controls and Procedures ..................................................................................................... 151
Item 9B. Other Information ............................................................................................................... 151
PART III
Item 10. Directors, Executive Officers and Corporate Governance .................................................. 152
Item 11. Executive Compensation ..................................................................................................... 152
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.............................................................................................. 152
Item 13. Certain Relationships and Related Transactions, and Director Independence .................... 152
Item 14. Principal Accounting Fees and Services.............................................................................. 152
iii
PART IV
Item 15. Exhibits, Financial Statement Schedules............................................................................. 153
(a) 1. Financial Statements..................................................................................................... 153
(a) 2. Financial Statement Schedules ..................................................................................... 153
(a) 3. Exhibits Required by Securities and Exchange Commission
Regulation S-K................................................................................................................ 154
SIGNATURES ................................................................................................................................... 156
POWER OF ATTORNEY.................................................................................................................. 156
iv
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
Statements contained in this Annual Report on Form 10-K (this “Annual Report”) relating to plans, strategies,
economic performance and trends, projections of results of specific activities or investments and other statements that are
not descriptions of historical facts may be forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is
inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated
due to a number of factors, which include, but are not limited to, factors discussed under the captions “Business —
General — Allowance for Loan Losses” and “Business — General — Market Area and Competition” in Item 1 below,
“Risk Factors” in Item 1A below, in “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Overview” in Item 7 below, and elsewhere in this Annual Report and in other documents filed by the
Company with the Securities and Exchange Commission from time to time. Forward-looking statements may be
identified by terms such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,”
“estimates,” “predicts,” “forecasts,” “potential” or “continue” or similar terms or the negative of these terms. Although
we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. We have no obligation to update these forward-looking
statements.
PART I
As used in this Annual Report on Form 10-K, the words “we,” “us,” “our” and the “Company” are used to
refer to Flushing Financial Corporation and our consolidated subsidiaries, including the surviving entity of the merger
(the “Merger”) on February 28, 2013 of our wholly owned subsidiary, Flushing Savings Bank, FSB (the “Savings
Bank”) with and into Flushing Commercial Bank (the “Commercial Bank”). The surviving entity of the Merger was the
Commercial Bank, whose name has been changed to “Flushing Bank.” References herein to the “Bank” mean the
Savings Bank (including its wholly owned subsidiary, the Commercial Bank) prior to the Merger and the surviving entity
after the Merger.
Item 1.
Business.
Overview
GENERAL
We are a Delaware corporation organized in May 1994. The Savings Bank was organized in 1929 as a New
York State-chartered mutual savings bank. In 1994, the Savings Bank converted to a federally chartered mutual savings
bank and changed its name from Flushing Savings Bank to Flushing Savings Bank, FSB. The Savings Bank converted
from a federally chartered mutual savings bank to a federally chartered stock savings bank on November 21, 1995, at
which time Flushing Financial Corporation acquired all of the stock of the Savings Bank. On February 28, 2013, in the
Merger, the Savings Bank merged with and into the Commercial Bank, with the Commercial Bank as the surviving
entity. Pursuant to the Merger, the Commercial Bank’s charter was changed to a full-service New York State commercial
bank charter, and its name was changed to Flushing Bank. Also in connection with the Merger, Flushing Financial
Corporation became a bank holding company. We have not made any significant changes to our operations or services as
a result of the Merger. The primary business of Flushing Financial Corporation has been the operation of the Bank. The
Bank owns three subsidiaries: Flushing Preferred Funding Corporation, Flushing Service Corporation, and FSB
Properties Inc. The Bank has an internet branch, iGObanking.com®. The activities of Flushing Financial Corporation are
primarily funded by dividends, if any, received from the Bank, issuances of junior subordinated debt, and issuances of
equity securities. Flushing Financial Corporation’s common stock is traded on the NASDAQ Global Select Market under
the symbol “FFIC.”
Flushing Financial Corporation also owns Flushing Financial Capital Trust II, Flushing Financial Capital Trust
III, and Flushing Financial Capital Trust IV (the “Trusts”), which are special purpose business trusts formed to issue a
total of $60.0 million of capital securities and $1.9 million of common securities (which are the only voting securities).
Flushing Financial Corporation owns 100% of the common securities of the Trusts. The Trusts used the proceeds from
the issuance of these securities to purchase junior subordinated debentures from Flushing Financial Corporation. The
Trusts are not included in our consolidated financial statements as we would not absorb the losses of the Trusts if losses
were to occur.
1
Unless otherwise disclosed, the information presented in this Annual Report reflects the financial condition and
results of operations of Flushing Financial Corporation, the Bank and the Bank’s subsidiaries on a consolidated basis
(collectively, the “Company”). Management views the Company as operating a single unit – a community bank.
Therefore, segment information is not provided. At December 31, 2013, the Company had total assets of $4.7 billion,
deposits of $3.2 billion and stockholders’ equity of $432.5 million.
Our principal business is attracting retail deposits from the general public and investing those deposits together
with funds generated from ongoing operations and borrowings, primarily in (1) originations and purchases of multi-
family residential properties and, to a lesser extent, one-to-four family (focusing on mixed-use properties, which are
properties that contain both residential dwelling units and commercial units) and commercial real estate mortgage loans;
(2) construction loans, primarily for residential properties; (3) Small Business Administration (“SBA”) loans and other
small business loans; (4) mortgage loan surrogates such as mortgage-backed securities; and (5) U.S. government
securities, corporate fixed-income securities and other marketable securities. We also originate certain other consumer
loans including overdraft lines of credit. At December 31, 2013, we had gross loans outstanding of $3,423.0 million
(before the allowance for loan losses and net deferred costs), with gross mortgage loans totaling $3,028.5 million, or
88.5% of gross loans, and non-mortgage loans totaling $394.6 million, or 11.5% of gross loans. Mortgage loans are
primarily multi-family, commercial and one-to-four family mixed-use properties, which combined totaled 82.4% of
gross loans. Our revenues are derived principally from interest on our mortgage and other loans and mortgage-backed
securities portfolio, and interest and dividends on other investments in our securities portfolio. Our primary sources of
funds are deposits, Federal Home Loan Bank of New York (“FHLB-NY”) borrowings, repurchase agreements, principal
and interest payments on loans, mortgage-backed and other securities, proceeds from sales of securities and, to a lesser
extent, proceeds from sales of loans. On July 21, 2011, as a result of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the “Dodd-Frank Act”), the Savings Bank’s primary regulator became the Office of the Comptroller of
the Currency (“OCC”) and Flushing Financial Corporation’s primary regulator became the Federal Reserve Board of
Governors (“Federal Reserve”). Upon completion of the Merger, the Bank’s primary regulator became the New York
State Department of Financial Services (“NYSDFS”) (formerly, the New York State Banking Department), and its
primary federal regulator became the Federal Deposit Insurance Corporation (“FDIC”). Deposits are insured to the
maximum allowable amount by the FDIC. Additionally, the Bank is a member of the Federal Home Loan Bank
(“FHLB”) system.
Our operating results are significantly affected by national and local economic conditions, including the
strength of the local economy. The national and local economies were generally considered to be in a recession from
December 2007 through the middle of 2009. This resulted in increased unemployment and declining property values,
although the property value declines in our market, the New York City metropolitan area, have not been as great as many
other areas of the country. While the national and local economies have shown signs of improvement since the middle of
2010, improvements in unemployment have lagged, with the unemployment rate decreasing but remaining at an elevated
level of 7.5% at December 2013 and 8.8% at December 2012, for the New York City region, according to the New York
State Department of Labor. We have also seen improvements in our level of non-performing loans, although they still
remain at elevated levels. Non-performing loans totaled $49.0 million, $89.8 million and $117.4 million at December 31,
2013, 2012 and 2011, respectively. Additionally, we have not experienced a significant increase in foreclosed properties
due to an extended foreclosure process in our market. Net charge-offs of impaired loans have decreased in 2013 to $13.3
million from $20.2 million and $18.9 million for the years ended December 31, 2012 and 2011, respectively. In response
to the economic conditions in our market and the increase in non-performing loans resulting from the recession, we
tightened our conservative underwriting standards in 2008 to reduce the risk associated with lending.
The following changes were made in our underwriting standards since 2008 to reduce the risk associated with
lending on income producing real estate properties:
(cid:131) When borrowers requested a refinance of an existing mortgage loan when they had acquired the
property or obtained their existing loan within two years of the request, we generally required
evidence of improvements to the property that increased the property value to support the
additional funds and generally restricted the loan-to-value ratio for the new loan to 65% of the
appraised value.
(cid:131) The debt coverage ratio was increased and the loan-to-value ratio decreased for income producing
properties with fewer than ten units. This required the borrower to have an additional investment in
the property than previously required and provided additional protection should rental units become
vacant.
2
(cid:131) Borrowers who owned multiple properties were required to provide detail on all their properties to
allow us to evaluate their total cash flow requirements. Based on this review, we may decline the
loan application, or require a lower loan-to-value ratio and a higher debt coverage ratio.
(cid:131) Income producing properties with existing rents that were at or above the current market rent for
similar properties were required to have a higher debt coverage ratio to provide protection should
rents decline.
(cid:131) Borrowers purchasing properties were required to demonstrate they had satisfactory liquidity and
management ability to carry the property should vacancies occur or increase.
The following changes were made in our underwriting standards since 2008 to reduce the risk on one-to-four
family residential property mortgage loans and home equity lines of credit:
(cid:131) We discontinued originating home equity lines of credit without verifying the borrower’s income.
This was done in two stages. Beginning in May 2008, we began verifying the borrower’s income
when the home equity line of credit exceeded $100,000. Beginning in October 2009, we verified
the income of all borrowers applying for a home equity line of credit.
(cid:131) We discontinued offering one-to-four family residential property mortgage loans to self-employed
individuals based on stated income and verifiable assets in June 2010.
The following changes were made in our underwriting standards since 2008 to reduce the risk associated with
business lending:
(cid:131) All borrowers obtaining a business loan were required to submit a complete financial information
package, regardless of the amount of the loan. Previously, borrowers for SBA Express loans and
other loans under $150,000 had been exempt from this requirement.
(cid:131) Background checks on all borrowers and guarantors for business loans were expanded to identify
and review information in more public records, including a search for judgments, liens, negative
press articles, and affiliations with other entities.
(cid:131) The guarantee of related business entities providing cash flow to the borrowing entity became
required for business loans.
(cid:131) The allowable percentage of inventory and accounts receivable pledged as collateral for a business
loan was reduced.
(cid:131) We established specific risk acceptance criteria for private not for profit schools.
The economic conditions we have experienced since December 2007 resulted in loan originations declining
year-over-year from 2008 through 2011. In 2012 the trend of declining loan originations reversed with loan originations
improving year-over-year in 2012 and 2013. Loan originations and purchases for 2013 increased $203.5 million, or
32.2%, to $836.0 million from $632.5 million for 2012.
Our operating results are also affected by extensions, renewals, modifications and restructuring of loans in our
loan portfolio. When extending, renewing, modifying or restructuring a loan, other than a loan that is classified as a
troubled debt restructured (“TDR”), the loan is required to be fully underwritten in accordance with our policy for new
loans. The borrower must be current to have a loan extended, renewed or restructured. Our policy for modifying a
mortgage loan due to the borrower’s request for changes in the terms will depend on the change requested. The borrower
must be current and have a good payment history to have a loan modified. If the borrower is seeking additional funds,
the loan is fully underwritten in accordance with our policy for new loans. If the borrower is seeking a reduction in the
interest rate due to a decline in interest rates in the market, we generally limit our review as follows: (1) for income
producing properties and business loans, to a review of the operating results of the property/business and a satisfactory
inspection of the property, and (2) for one-to-four residential properties, to a satisfactory inspection of the property. Our
policy on restructuring a loan when the loan will be classified as a TDR requires the loan to be fully underwritten in
accordance with Company policy. The borrower must demonstrate the ability to repay the loan under the new terms.
When the restructuring results in a TDR, we may waive some requirements of Company policy provided the borrower
has demonstrated the ability to meet the requirements of the restructured loan and repay the restructured loan. While our
formal lending policies do not prohibit making additional loans to a borrower or any related interest of the borrower who
is past due in principal or interest more than 90 days, it has been our practice not to make additional loans to a borrower
3
or a related interest of the borrower if the borrower is past due more than 90 days as to principal or interest. During the
most recent three fiscal years, we did not make any additional loans to a borrower or any related interest of the borrower
who was past due in principal or interest more than 90 days. All extensions, renewals, restructurings and modifications
must be approved by either the Board of Directors of the Bank (the “Bank Board of Directors”) or its Loan Committee
(the “Loan Committee”).
Our operating results are also affected by losses on non-performing loans. Our policy requires a reappraisal by
an independent third party when a loan becomes twelve months delinquent. We generally obtain a reappraisal by an
independent third party for loans over 90 days delinquent when the outstanding loan balance is at least $1.0 million. We
also obtain reappraisals when our internally prepared valuation of a property indicates there has been a decline in value
below the outstanding balance of the loan, or when a property inspection has indicated significant deterioration in the
condition of the property. These internal valuations are prepared when a loan becomes 90 days delinquent.
The Bank has a business banking unit. Our business strategy includes a transition from a traditional thrift to a
more “commercial-like” banking institution by focusing on the development of a full complement of commercial
business deposit, loan and cash management products. As of December 31, 2013, the business banking unit had $378.3
million in gross loans outstanding and $138.5 million of customer deposits.
The Bank has an internet branch, iGObanking.com®, which provides access to consumers in markets outside
our geographic locations. Accounts can be opened online at www.iGObanking.com or by mail. The internet branch does
not currently accept loan applications. As of December 31, 2013, the internet branch had $293.2 million of customer
deposits.
The Savings Bank formed a wholly owned subsidiary, Flushing Commercial Bank, a New York State-chartered
commercial bank, for the limited purpose of providing banking services to public entities including counties, cities,
towns, villages, school districts, libraries, fire districts and the various courts throughout the New York City metropolitan
area. The Commercial Bank was formed in response to New York State law, which requires that municipal deposits and
state funds must be deposited into a bank or trust company as defined in New York State law. The Savings Bank was not
considered an eligible bank or trust company for this purpose. On February 28, 2013, in the Merger, the Savings Bank
merged with and into the Commercial Bank, with the Commercial Bank as the surviving entity. Pursuant to the Merger,
the Commercial Bank’s charter was changed to a full-service New York State commercial bank charter, and its name
was changed to Flushing Bank.
On December 19, 2008, under the Troubled Asset Relief Program (“TARP”), we entered into a Letter
Agreement (including the Securities Purchase Agreement – Standard Terms incorporated by reference therein, the
“Purchase Agreement”) with the United States Department of the Treasury (the “U.S. Treasury”) pursuant to which we
issued and sold to the U.S. Treasury (i) 70,000 shares of our Fixed Rate Cumulative Perpetual Preferred Stock Series B
having a liquidation preference of $1,000 per share (the “Series B Preferred Stock”), and (ii) a ten-year warrant (the
“Warrant”) to purchase up to 751,611 shares of the our common stock, par value $0.01 per share, at an initial price of
$13.97 per share, for an aggregate purchase price of $70.0 million in cash. The Series B Preferred Stock qualified as Tier
1 Capital under the risk-based capital guidelines of the Office of Thrift Supervision (“OTS”) (“Tier 1 Capital”) and paid
cumulative dividends at a rate of 5% per annum. Dividends were payable on the Series B Preferred Stock quarterly and
were payable on February 15, May 15, August 15 and November 15 of each year. The Series B Preferred Stock had no
maturity date and ranked senior to our common stock with respect to the payment of dividends and distributions and
amounts payable upon liquidation and winding up of the Company. The Warrant would have expired ten years from the
issuance date and was immediately exercisable and transferable. The Purchase Agreement contained limitations on the
payment of dividends on and the repurchase of our common stock and certain preferred stock. The Purchase Agreement
also required that, until such time as the U.S. Treasury ceased to own any securities acquired from us thereunder, we take
all necessary action to ensure that benefit plans with respect to senior executive officers complied with Section 111(b) of
the Emergency Economic Stabilization Act of 2008 (“EESA”) as implemented by any guidance or regulation under
Section 111(b) of EESA that has been issued and was in effect as of the date of issuance of the Series B Preferred Stock
and the Warrant and not adopt any benefit plans with respect to, or which cover, senior executive officers that do not
comply with EESA. Our senior executive officers consented to the foregoing. During 2009, we issued, in a public
offering, 9.3 million common shares for total consideration, after expenses, of $101.5 million. This public offering was a
Qualified Equity Offering as defined in the Warrant. As a result of this Qualified Equity Offering, the number of shares
of common stock underlying the Warrant was reduced by one-half. On October 28, 2009, we redeemed the Series B
Preferred Stock for $70.0 million plus all accrued and unpaid dividends. On December 30, 2009, we repurchased the
Warrant for $0.9 million.
4
Market Area and Competition
We are a community oriented financial institution offering a wide variety of financial services to meet the needs
of the communities we serve. The Bank’s main office is in Flushing, New York, located in the Borough of Queens. At
December 31, 2013, the Bank operated out of 17 full-service offices, located in the New York City Boroughs of Queens,
Brooklyn, and Manhattan, and in Nassau County, New York. We also operate an internet branch, iGObanking.com®. We
maintain our executive offices in Lake Success in Nassau County, New York. Substantially all of our mortgage loans are
secured by properties located in the New York City metropolitan area.
We face intense competition both in making loans and in attracting deposits. Competition for loans in our
market is primarily based on the types of loans offered and the related terms for these loans, including fixed-rate versus
adjustable-rate loans and the interest rate on the loan. For adjustable rate loans, competition is also based on the repricing
period, the index to which the rate is referenced, and the spread over the index rate. Also, competition is influenced by
the ability of a financial institution to respond to customer requests and to provide the borrower with a timely decision to
approve or deny the loan application.
Our market area has a high density of financial institutions, many of which have greater financial resources,
name recognition and market presence, and all of which are competitors to varying degrees. Particularly intense
competition exists for deposits, as we compete with over 115 banks and thrifts in the counties in which we have branch
locations. Our market share of deposits in these counties is approximately 0.35% of the total deposits of these competing
financial institutions, and we are the 24th largest financial institution. In addition, we compete with credit unions, the
stock market and mutual funds for customers’ funds. Competition for deposits in our market and for national brokered
deposits is primarily based on the types of deposits offered and rate paid on the deposits. Particularly intense competition
also exists in all of the lending activities we emphasize. In addition to the financial institutions mentioned above, we
compete against mortgage banks and insurance companies located both within our market and available on the internet.
Competition for loans in our market is primarily based on the types of loans offered and the related terms for these loans,
including fixed-rate versus adjustable-rate loans and the interest rate on the loan. For adjustable rate loans, competition is
also based on the repricing period, the index to which the rate is referenced, and the spread over the index rate. Also,
competition is influenced by the ability of a financial institution to respond to customer requests and to provide the
borrower with a timely decision to approve or deny the loan application. The internet banking arena also has many larger
financial institutions which have greater financial resources, name recognition and market presence. Our future earnings
prospects will be affected by our ability to compete effectively with other financial institutions and to implement our
business strategies. Our strategy for attracting deposits includes using various marketing techniques, delivering enhanced
technology and customer friendly banking services, and focusing on the unique personal and small business banking
needs of the multi-ethnic communities we serve. Our strategy for attracting new loans is primarily dependent on
providing timely response to applicants and maintaining a network of quality brokers. See “Risk Factors – The Markets
in Which We Operate Are Highly Competitive” included in Item 1A of this Annual Report.
For a discussion of our business strategies, see “Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Overview — Management Strategy” included in Item 7 of this Annual Report.
Lending Activities
Loan Portfolio Composition. Our loan portfolio consists primarily of mortgage loans secured by multi-family
residential, commercial real estate, one-to-four family mixed-use property, one-to-four family residential property, and
commercial business loans. In addition, we also offer construction loans, SBA loans, Taxi medallion loans and other
consumer loans. Substantially all of our mortgage loans are secured by properties located within our market area. At
December 31, 2013, we had gross loans outstanding of $3,423.0 million (before the allowance for loan losses and net
deferred costs).
Since 2009 we have focused our mortgage loan origination efforts on multi-family residential mortgage loans.
In prior years we had focused our mortgage loan originations on multi-family residential, commercial real estate and
one-to-four family mixed-use property mortgage loans. These loans generally have higher yields than one-to-four family
residential properties, and include prepayment penalties that we collect if the loans pay in full prior to the contractual
maturity. We expect to continue this emphasis on multi-family residential mortgage loans through marketing and by
maintaining competitive interest rates and origination fees. Our marketing efforts include frequent contact with mortgage
brokers and other professionals who serve as referral sources. The reduced emphasis on commercial real estate, one-to-
four family mixed-use property mortgage loans, and construction loans since 2009 was due to the increased level of risk
in these types of loans in the current economic environment. While we expect to continue this reduced emphasis on the
5
origination of commercial real estate and one-to-four family mixed-use property mortgage loans, and construction loans,
in the near term, we have cautiously resumed the origination of non-owner occupied commercial real estate and one-to-
four family mixed-use property mortgage loans.
Fully underwritten one-to-four family residential mortgage loans generally are considered by the banking
industry to have less risk than other types of loans. Multi-family residential, commercial real estate and one-to-four
family mixed-use property mortgage loans generally have higher yields than one-to-four family residential property
mortgage loans and shorter terms to maturity, but typically involve higher principal amounts and may expose the lender
to a greater risk of credit loss than one-to-four family residential property mortgage loans. Our increased emphasis on
multi-family residential mortgage loans since 2009, and on multi-family residential, commercial real estate and one-to-
four family mixed-use property mortgage loans during years prior to 2009, has increased the overall level of credit risk
inherent in our loan portfolio. The greater risk associated with multi-family residential, commercial real estate and one-
to-four family mixed-use property mortgage loans could require us to increase our provisions for loan losses and to
maintain an allowance for loan losses as a percentage of total loans in excess of the allowance we currently maintain. We
continually review the composition of our mortgage loan portfolio to manage the risk in the portfolio. As a result of this
ongoing review, we reduced our reliance on commercial real estate and one-to-four family mixed-use property mortgage
loans during the most recent two years, and tightened our conservative underwriting standards to further reduce the risk
associated with lending. See “General – Overview” in this Item 1 of this Annual Report. To date, we have not
experienced significant losses in our multi-family residential, commercial real estate and one-to-four family mixed-use
property mortgage loan portfolios.
Our mortgage loan portfolio consists of adjustable rate mortgage (“ARM”) loans and fixed-rate mortgage loans.
Interest rates we charge on loans are affected primarily by the demand for such loans, the supply of money available for
lending purposes, the rate offered by our competitors and the creditworthiness of the borrower. Many of those factors
are, in turn, affected by local and national economic conditions, and the fiscal, monetary and tax policies of the federal,
state and local governments.
In general, consumers show a preference for ARM loans in periods of high interest rates and for fixed-rate loans
when interest rates are low. In periods of declining interest rates, we may experience refinancing activity in ARM loans,
as borrowers show a preference to lock-in the lower rates available on fixed-rate loans. In the case of ARM loans we
originated, volume and adjustment periods are affected by the interest rates and other market factors as discussed above
as well as consumer preferences. We have not in the past, nor do we currently, originate ARM loans that provide for
negative amortization.
Prior to 2007, we had grown our construction loan portfolio. During 2007, we began to deemphasize
construction loans, as originations of new construction loans declined. We have continued to deemphasize construction
loans since then as we reduced the balance of our construction loan portfolio, which totaled $4.2 million at December 31,
2013. We intend to continue to deemphasize construction loans in the near term. We obtain a first lien position on the
underlying collateral, and generally obtain personal guarantees on construction loans. These loans generally have a term
of two years or less. Construction loans involve a greater degree of risk than other loans because, among other things, the
underwriting of such loans is based on an estimated value of the developed property, which can be difficult to ascertain
in light of uncertainties inherent in such estimations. In addition, construction lending entails the risk that the project
may not be completed due to cost overruns or changes in market conditions. The greater risk associated with
construction loans could require us to increase our provision for loan losses, and to maintain an allowance for loan losses
as a percentage of total loans in excess of the allowance we currently maintain. To date, we have not incurred significant
losses in our construction loan portfolio.
The business banking unit was formed in 2006 to focus on loan and deposit relationships to businesses located
within our market area. These loans are generally personally guaranteed by the owners, and may be secured by the assets
of the business, including real estate. The interest rate on these loans is generally an adjustable rate based on a published
index. These loans, while providing us a higher rate of return, also present a higher level of risk. The greater risk
associated with business loans could require us to increase our provision for loan losses, and to maintain an allowance
for loan losses as a percentage of total loans in excess of the allowance we currently maintain. To date, we have not
incurred significant losses in our business loan portfolio.
From time to time, we may purchase loans from mortgage bankers and other financial institutions when the
loans complement our loan portfolio strategy. Loans purchased must meet our underwriting standards when they were
originated. Our lending activities are subject to federal and state laws and regulations. See “— Regulation.”
6
The following table sets forth the composition of our loan portfolio at the dates indicated.
2013
Amount
Percent
of Total
2012
Amount
Percent
of Total
At December 31,
2011
Percent
of Total
Amount
(Dollars in thousands)
2010
Amount
Percent
of Total
2009
Amount
Percent
of Total
$
1,712,039
512,552
50.02 %
14.97
$
1,534,438
515,438
47.62 %
16.00
$
1,391,221
580,783
43.28 %
18.07
$
1,252,176
662,794
38.40 %
20.33
$
1,158,700
686,210
36.16 %
21.42
595,751
17.40
637,353
19.79
693,932
21.59
728,810
22.36
744,560
23.24
193,726
10,137
4,247
5.66
0.30
0.12
198,968
6,303
14,381
6.18
0.20
0.45
220,431
5,505
47,140
6.86
0.17
1.47
241,376
6,215
75,519
7.41
0.19
2.32
249,920
6,553
97,270
7.81
0.20
3.04
Mortgage Loans:
Multi-family residential
Commercial real estate
One-to-four family -
mixed-use property
One-to-four family -
residential (1)
Co-operative apartment (2)
Construction
Gross mortgage loans
3,028,452
88.47
2,906,881
90.24
2,939,012
91.44
2,966,890
91.01
2,943,213
91.87
Non-mortgage loans:
Small Business Administration
Taxi medallion
Commercial business and other
Gross non-mortgage loans
7,792
13,123
373,641
394,556
0.23
0.38
10.92
11.53
9,496
9,922
295,076
314,494
0.29
0.31
9.16
9.76
14,039
54,328
206,614
274,981
0.44
1.69
6.43
8.56
17,511
88,264
187,161
292,936
0.54
2.71
5.74
8.99
17,496
61,424
181,240
260,160
0.55
1.92
5.66
8.13
Gross loans
3,423,008
100.00 %
3,221,375
100.00 %
3,213,993
100.00 %
3,259,826
100.00 %
3,203,373
100.00 %
Unearned loan fees and deferred
costs, net
Less: Allowance for loan losses
Loans, net
11,170
(31,776)
3,402,402
$
12,746
(31,104)
3,203,017
$
14,888
(30,344)
3,198,537
$
16,503
(27,699)
3,248,630
$
17,110
(20,324)
3,200,159
$
(1)
(2)
One-to-four family residential mortgage loans also include home equity and condominium loans. At December 31, 2013, gross home equity loans totaled $58.6 million and condominium loans
totaled $24.5 million.
Consists of loans secured by shares representing interests in individual co-operative units that are generally owner occupied.
7
The following table sets forth our loan originations (including the net effect of refinancing) and the changes in
our portfolio of loans, including purchases, sales and principal reductions for the years indicated:
(In thousands)
Mortgage Loans
At beginning of year
Mortgage loans originated:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Co-operative apartment
Construction
Total mortgage loans originated
Mortgage loans purchased:
Commercial real estate
Total mortgage loans purchased
Less:
Principal reductions
Loans transferred to loans held for sale
Mortgage loan sales
Charge-offs
Mortgage loan foreclosures
At end of year
Non-mortgage loans
At beginning of year
Loans originated:
Small Business Administration
Taxi Medallion
Commercial business
Other
Total other loans originated
Non-mortgage loans purchased:
Taxi Medallion
Less:
Non-mortgage loan sales
Loans transferred to loans held for sale
Principal reductions
Charge-offs
For the years ended December 31,
2012
2011
2013
$
2,906,881
$
2,939,012
$
2,966,890
382,041
68,968
40,898
27,495
4,966
3,089
527,457
452
452
363,805
9,524
18,306
12,329
2,374
3,028,452
314,494
603
-
292,385
5,360
298,348
$
$
317,663
31,789
15,961
24,485
1,810
806
392,514
-
-
359,168
6,498
34,033
19,284
5,662
2,906,881
274,981
529
8
231,877
4,138
236,552
$
$
249,010
7,070
23,754
24,075
-
1,723
305,632
-
-
284,327
-
24,832
17,845
6,506
2,939,012
292,936
3,528
11,779
66,352
4,859
86,518
$
$
9,737
3,456
19,053
-
-
225,509
2,514
1,379
5,400
191,731
1,985
4,104
-
118,032
1,390
At end of year
$
394,556
$
314,494
$
274,981
8
Loan Maturity and Repricing. The following table shows the maturity of our total loan portfolio at December 31, 2013. Scheduled repayments are shown in
the maturity category in which the payments become due.
(In thousands)
Amounts due within one year
Amounts due after one year:
One to two years
Two to three years
Three to five years
Over five years
Total due after one year
Total amounts due
Sensitivity of loans to changes in
interest rates - loans due
after one year:
Fixed rate loans
Adjustable rate loans
Total loans due after one year
Multi-family
residential
Commercial
real estate
Mortgage loans
One-to-four
family
mixed-use
property
One-to-four
family
residential
Non-mortgage loans
Co-operative
apartment
Construction
Small Business
Administration
Taxi
Medallion
Commercial
business
and other
Total loans
$
147,762
$
89,734
$
37,483
$
8,080
$
321
$
4,247
$
3,296
$
6,995
$
142,049
$
439,967
132,622
130,506
129,385
1,171,764
1,564,277
1,712,039
379,796
1,184,481
1,564,277
$
$
$
$
$
$
68,387
61,618
54,755
238,058
422,818
512,552
84,195
338,623
422,818
$
$
$
35,888
32,121
28,112
462,147
558,268
595,751
106,384
451,884
558,268
$
$
$
8,260
8,309
7,984
161,093
185,646
193,726
46,112
139,534
185,646
$
$
$
333
341
350
8,792
9,816
10,137
1,500
8,316
9,816
$
$
$
-
-
-
-
-
4,247
-
-
-
$
$
$
827
676
446
2,547
4,496
7,792
128
4,368
4,496
$
$
$
3,705
2,422
1
-
6,128
13,123
6,128
-
6,128
$
$
$
46,483
39,159
31,458
114,492
231,592
373,641
154,443
77,149
231,592
296,505
275,152
252,491
2,158,893
2,983,041
3,423,008
778,686
2,204,355
2,983,041
$
$
$
9
Multi-Family Residential Lending. Loans secured by multi-family residential properties were $1,712.0 million,
or 50.02% of gross loans, at December 31, 2013. Our multi-family residential mortgage loans had an average principal
balance of $857,000 at December 31, 2013, and the largest multi-family residential mortgage loan held in our portfolio
had a principal balance of $28.0 million. We offer both fixed-rate and adjustable-rate multi-family residential mortgage
loans, with maturities of up to 30 years.
In underwriting multi-family residential mortgage loans, we review the expected net operating income
generated by the real estate collateral securing the loan, the age and condition of the collateral, the financial resources
and income level of the borrower and the borrower’s experience in owning or managing similar properties. We typically
require debt service coverage of at least 125% of the monthly loan payment. During 2008, we increased the required
debt service coverage ratio for multi-family residential loans with ten units or less. We generally originate these loans up
to only 75% of the appraised value or the purchase price of the property, whichever is less. Any loan with a final loan-to-
value ratio in excess of 75% must be approved by the Bank Board of Directors or the Loan Committee as an exception to
policy. We generally rely on the income generated by the property as the primary means by which the loan is repaid.
However, personal guarantees may be obtained for additional security from these borrowers. We typically order an
environmental report on our multi-family and commercial real estate loans.
Loans secured by multi-family residential property generally involve a greater degree of risk than residential
mortgage loans and carry larger loan balances. The increased credit risk is the result of several factors, including the
concentration of principal in a smaller number of loans and borrowers, the effects of general economic conditions on
income producing properties and the increased difficulty in evaluating and monitoring these types of loans. Furthermore,
the repayment of loans secured by multi-family residential property is typically dependent upon the successful operation
of the related property, which is usually owned by a legal entity with the property being the entity’s only asset. If the
cash flow from the property is reduced, the borrower’s ability to repay the loan may be impaired. If the borrower
defaults, our only remedy may be to foreclose on the property, for which the market value may be less than the balance
due on the related mortgage loan. Loans secured by multi-family residential property also may involve a greater degree
of environmental risk. We seek to protect against this risk through obtaining an environmental report. See “—Asset
Quality — Environmental Concerns Relating to Loans.”
At December 31, 2013, $1,286.0 million, or 75.11%, of our multi-family mortgage loans consisted of ARM
loans. We offer ARM loans with adjustment periods typically of five years and for terms of up to 30 years. Interest rates
on ARM loans currently offered by us are adjusted at the beginning of each adjustment period based upon a fixed spread
above the FHLB-NY corresponding Regular Advance Rate. From time to time, we may originate ARM loans at an initial
rate lower than the index as a result of a discount on the spread for the initial adjustment period. Multi-family
adjustable-rate mortgage loans generally are not subject to limitations on interest rate increases either on an adjustment
period or aggregate basis over the life of the loan. We originated and purchased multi-family ARM loans totaling $197.8
million, $221.7 million and $218.8 million during 2013, 2012 and 2011, respectively.
At December 31, 2013, $426.1 million, or 24.89%, of our multi-family mortgage loans consisted of fixed rate
loans. Our fixed-rate multi-family mortgage loans are generally originated for terms up to 15 years and are competitively
priced based on market conditions and our cost of funds. We originated and purchased $184.3 million, $95.9 million and
$30.2 million of fixed-rate multi-family mortgage loans in 2013, 2012 and 2011, respectively.
Commercial Real Estate Lending. Loans secured by commercial real estate were $512.6 million, or 14.97% of
gross loans, at December 31, 2013. Our commercial real estate mortgage loans are secured by improved properties such
as office buildings, hotels/motels, nursing homes, small business facilities, strip shopping centers, warehouses, and, to a
lesser extent, religious facilities. At December 31, 2013, our commercial real estate mortgage loans had an average
principal balance of $646,000, and the largest of such loans, which was secured by a multi-tenant shopping center, had a
principal balance of $14.9 million. Commercial real estate mortgage loans are generally originated in a range of
$100,000 to $6.0 million.
In underwriting commercial real estate mortgage loans, we employ the same underwriting standards and
procedures as are employed in underwriting multi-family residential mortgage loans.
Commercial real estate mortgage loans generally carry larger loan balances than one-to-four family residential
mortgage loans and involve a greater degree of credit risk for the same reasons applicable to multi-family loans.
At December 31, 2013, $409.1 million, or 79.81%, of our commercial mortgage loans consisted of ARM loans.
We offer ARM loans with adjustment periods of one to five years and generally for terms of up to 15 years. Interest
rates on ARM loans currently offered by us are adjusted at the beginning of each adjustment period based upon a fixed
10
spread above the FHLB-NY corresponding Regular Advance Rate. From time to time, we may originate ARM loans at
an initial rate lower than the index as a result of a discount on the spread for the initial adjustment period. Commercial
adjustable-rate mortgage loans generally are not subject to limitations on interest rate increases either on an adjustment
period or aggregate basis over the life of the loan. We originated and purchased commercial ARM loans totaling $43.9
million, $19.9 million and $2.1 million during 2013, 2012 and 2011, respectively.
At December 31, 2013, $103.5 million, or 20.19%, of our commercial mortgage loans consisted of fixed-rate
loans. Our fixed-rate commercial mortgage loans are generally originated for terms up to 20 years and are competitively
priced based on market conditions and our cost of funds. We originated and purchased $25.5 million, $11.9 million and
$5.0 million of fixed-rate commercial mortgage loans in 2013, 2012 and 2011, respectively.
One-to-Four Family Mortgage Lending – Mixed-Use Properties. We offer mortgage loans secured by one-to-
four family mixed-use properties. These properties contain up to four residential dwelling units and a commercial unit.
We offer both fixed-rate and adjustable-rate one-to-four family mixed-use property mortgage loans with maturities of up
to 30 years and a general maximum loan amount of $1,000,000. Loan originations primarily result from applications
received from mortgage brokers and mortgage bankers, existing or past customers, and persons who respond to our
marketing efforts and referrals. One-to-four family mixed-use property mortgage loans were $595.8 million, or 17.40%
of gross loans, at December 31, 2013.
In underwriting one-to-four family mixed-use property mortgage loans, we employ the same underwriting
standards as are employed in underwriting multi-family residential mortgage loans.
At December 31, 2013, $467.6 million, or 78.49%, of our one-to-four family mixed-use property mortgage
loans consisted of ARM loans. We offer adjustable-rate one-to-four family mixed-use property mortgage loans with
adjustment periods typically of five years and for terms of up to 30 years. Interest rates on ARM loans currently offered
by the Bank are adjusted at the beginning of each adjustment period based upon a fixed spread above the FHLB-NY
corresponding Regular Advance Rate. From time to time, we may originate ARM loans at an initial rate lower than the
index as a result of a discount on the spread for the initial adjustment period. One-to-four family mixed-use property
adjustable-rate mortgage loans generally are not subject to limitations on interest rate increases either on an adjustment
period or aggregate basis over the life of the loan. We originated and purchased one-to-four family mixed-use property
ARM loans totaling $20.3 million, $10.8 million and $17.6 million during 2013, 2012 and 2011, respectively.
At December 31, 2013, $128.2 million, or 21.51%, of our one-to-four family mixed-use property mortgage
loans consisted of fixed-rate loans. Our fixed-rate one-to-four family mixed-use property mortgage loans are originated
for terms of up to 15 years and are competitively priced based on market conditions and the Bank’s cost of funds. We
originated and purchased $20.6 million, $5.2 million and $6.1 million of fixed-rate one-to-four family mixed-use
property mortgage loans in 2013, 2012 and 2011, respectively.
One-to-Four Family Mortgage Lending – Residential Properties. We offer mortgage loans secured by one-to-
four family residential properties, including townhouses and condominium units. For purposes of the description
contained in this section, one-to-four family residential mortgage loans, co-operative apartment loans and home equity
loans are collectively referred to herein as “residential mortgage loans.” We offer both fixed-rate and adjustable-rate
residential mortgage loans with maturities of up to 30 years and a general maximum loan amount of $1,000,000. Loan
originations generally result from applications received from mortgage brokers and mortgage bankers, existing or past
customers, and referrals. Residential mortgage loans were $203.9 million, or 5.96% of gross loans, at December 31,
2013.
We generally originate residential mortgage loans in amounts up to 80% of the appraised value or the sale price,
whichever is less. We may make residential mortgage loans with loan-to-value ratios of up to 90% of the appraised
value of the mortgaged property; however, private mortgage insurance is required whenever loan-to-value ratios exceed
80% of the appraised value of the property securing the loan.
In addition to income verified loans, we have in the past originated residential mortgage loans to self-employed
individuals within our local community based on stated income and verifiable assets that allowed us to assess repayment
ability, provided that the borrower’s stated income is considered reasonable for the borrower’s type of business. The
preponderance of stated income one-to-four family residential mortgage loans were made available to self-employed
individuals within our local community for their primary residence. Our underwriting standards required that we verify
the assets of the borrowers and the sources of their cash flows. The information reviewed for purchases included at least
three months and refinances included at least one month of personal bank statements (checking and savings accounts),
statements of investment accounts, business checking account statements (when applicable), and other information
provided by the borrowers about their personal holdings. Our review of these bank statements allowed us to assess
11
whether or not their stated income appeared reasonable in comparison to their cash flows, and if their income level
supported their personal holdings. We also obtained and reviewed credit reports on these borrowers. An acceptable credit
report was one of the key factors in approving this type of mortgage loan. We obtained appraisals from an independent
third party for the property, and limited the amount we lent on the properties to 80% of the lesser of the property’s
appraised value or the purchase price. Home equity lines of credit were offered on one-to-four residential properties to
homeowners based on various levels of income verification. We limited the amount available under a home equity line
of credit to 80% of the lesser of the appraised value of the property and the purchase price. These loans involve a higher
degree of risk as compared to our other fully underwritten residential mortgage loans as there is a greater opportunity for
self-employed borrowers to falsify or overstate their level of income and ability to service indebtedness. This risk is
mitigated by the requirements discussed above in our loan policy. In addition, since 2008, the underwriting standards for
home equity loans were modified to discontinue originating home equity lines of credit without verifying the borrower’s
income. This was accomplished in two stages. Beginning in May 2008, we began verifying the borrower’s income
when the home equity line of credit exceeded $100,000. Beginning in October 2009, we verified the income of all
borrowers applying for a home equity line of credit. We also discontinued offering one-to-four family residential
property mortgage loans to self-employed individuals based on stated income and verifiable assets in June 2010. We had
$15.8 million and $20.8 million outstanding of one-to four family residential mortgage loans originated to individuals
based on stated income and verifiable assets at December 31, 2013 and 2012, respectively. We had $49.9 million and
$52.8 million advanced on home equity lines of credit for which we did not verify the borrowers’ income at December
31, 2013 and 2012, respectively.
At December 31, 2013, $152.0 million, or 74.58%, of our residential mortgage loans consisted of ARM loans.
We offer ARM loans with adjustment periods of one, three, five, seven or ten years. Interest rates on ARM loans
currently offered by us are adjusted at the beginning of each adjustment period based upon a fixed spread above the
FHLB-NY corresponding Regular Advance Rate. From time to time, we may originate ARM loans at an initial rate
lower than the index as a result of a discount on the spread for the initial adjustment period. ARM loans generally are
subject to limitations on interest rate increases of 2% per adjustment period and an aggregate adjustment of 6% over the
life of the loan. We originated and purchased adjustable rate residential mortgage loans totaling $17.6 million, $23.6
million and $21.5 million during 2013, 2012 and 2011, respectively.
The retention of ARM loans in our portfolio helps us reduce our exposure to interest rate risks. However, in an
environment of rapidly increasing interest rates, it is possible for the interest rate increase to exceed the maximum
aggregate adjustment on one-to-four family residential ARM loans and negatively affect the spread between our interest
income and our cost of funds.
ARM loans generally involve credit risks different from those inherent in fixed-rate loans, primarily because if
interest rates rise, the underlying payments of the borrower rise, thereby increasing the potential for default. However,
this potential risk is lessened by our policy of originating one-to-four family residential ARM loans with annual and
lifetime interest rate caps that limit the increase of a borrower’s monthly payment.
At December 31, 2013, $51.8 million, or 25.42%, of our residential mortgage loans consisted of fixed-rate
loans. Our fixed-rate residential mortgage loans typically are originated for terms of 15 and 30 years and are
competitively priced based on market conditions and our cost of funds. We originated and purchased $4.3 million, $2.7
million and $2.6 million in 15-year fixed-rate residential mortgages in 2013, 2012 and 2011, respectively. We did not
originate or purchase any 30-year fixed-rate residential mortgages in 2013, 2012 and 2011.
At December 31, 2013, home equity loans totaled $58.6 million, or 1.71%, of gross loans. Home equity loans
are included in our portfolio of residential mortgage loans. These loans are offered as adjustable-rate “home equity lines
of credit” on which interest only is due for an initial term of 10 years and thereafter principal and interest payments
sufficient to liquidate the loan are required for the remaining term, not to exceed 30 years. These adjustable “home
equity lines of credit” may include a “floor” and/or a “ceiling” on the interest rate that we charge for these loans. These
loans also may be offered as fully amortizing closed-end fixed-rate loans for terms up to 15 years. The majority of home
equity loans originated are owner occupied one-to-four family residential properties and condominium units. To a lesser
extent, home equity loans are also originated on one-to-four residential properties held for investment and second homes.
All home equity loans are subject to an 80% loan-to-value ratio computed on the basis of the aggregate of the first
mortgage loan amount outstanding and the proposed home equity loan. They are generally granted in amounts from
$25,000 to $300,000.
Construction Loans. At December 31, 2013, construction loans totaled $4.2 million, or 0.12%, of gross loans.
Our construction loans primarily have been made to finance the construction of one-to-four family residential properties,
multi-family residential properties and residential condominiums. We also, to a limited extent, finance the construction
12
of commercial real estate. Our policies provide that construction loans may be made in amounts up to 70% of the
estimated value of the developed property and only if we obtain a first lien position on the underlying real estate.
However, we generally limit construction loans to 60% of the estimated value of the developed property. In addition, we
generally require personal guarantees on all construction loans. Construction loans are generally made with terms of two
years or less. Advances are made as construction progresses and inspection warrants, subject to continued title searches
to ensure that we maintain a first lien position. We made advances on construction loans of $3.1 million, $0.8 million
and $1.7 million during 2013, 2012 and 2011, respectively.
Construction loans involve a greater degree of risk than other loans because, among other things, the
underwriting of such loans is based on an estimated value of the developed property, which can be difficult to ascertain
in light of uncertainties inherent in such estimations. In addition, construction lending entails the risk that the project
may not be completed due to cost overruns or changes in market conditions.
Small Business Administration Lending. At December 31, 2013, SBA loans totaled $7.8 million, representing
0.23%, of gross loans. These loans are extended to small businesses and are guaranteed by the SBA up to a maximum of
85% of the loan balance for loans with balances of $150,000 or less, and to a maximum of 75% of the loan balance for
loans with balances greater than $150,000. We also provide term loans and lines of credit up to $350,000 under the SBA
Express Program, on which the SBA provides a 50% guaranty. The maximum loan size under the SBA guarantee
program was $2.0 million, with a maximum loan guarantee of $1.5 million. The Small Business Jobs Act of 2010
permanently increased the limits to a maximum loan size of $5.0 million, with a maximum loan guarantee of $3.75
million. All SBA loans are underwritten in accordance with SBA Standard Operating Procedures which requires
collateral and the personal guarantee of the owners with more than 20% ownership from SBA borrowers. Typically,
SBA loans are originated in the range of $25,000 to $2.0 million with terms ranging from one to seven years and up to
25 years for owner occupied commercial real estate mortgages. SBA loans are generally offered at adjustable rates tied
to the prime rate (as published in the Wall Street Journal) with adjustment periods of one to three months. We generally
sell the guaranteed portion of certain SBA term loans in the secondary market, realizing a gain at the time of sale, and
retain the servicing rights on these loans, collecting a servicing fee of approximately 1%. We originated and purchased
$0.6 million, $0.5 million and $3.5 million of SBA loans during 2013, 2012 and 2011, respectively.
Taxi medallion.. At December 31, 2013, taxi medallion loans totaled $13.1 million, or 0.38%, of gross loans.
We originate and purchase loans made to New York City taxi medallion owners. These loans, which totaled $13.1
million at December 31, 2013, are secured through liens on the taxi medallions. We originate and purchase taxi
medallion loans up to 80% of the value of the taxi medallion. We originated and purchased $9.7 million, $3.5 million
and $30.8 million of taxi medallion loans during 2013, 2012 and 2011, respectively.
Commercial Business and Other Lending. At December 31, 2013, commercial business and other loans totaled
$373.6 million, or 10.92%, of gross loans. We originate commercial business loans and other loans for business,
personal, or household purposes. Commercial business loans are provided to businesses in the New York City
metropolitan area with annual sales of up to $250.0 million. Our commercial business loans include lines of credit and
term loans including owner occupied mortgages. These loans are secured by business assets, including accounts
receivables, inventory and real estate and generally require personal guarantees. The Bank also, at times, enters into
participations/syndications with other banks on senior secured commercial business loans. Other loans generally consist
of overdraft lines of credit. Generally, unsecured consumer loans are limited to amounts of $5,000 or less for terms of up
to five years. We originated and purchased $297.7 million, $236.0 million and $71.2 million of commercial business and
other loans during 2013, 2012 and 2011, respectively. The underwriting standards employed by us for consumer and
other loans include a determination of the applicant’s payment history on other debts and assessment of the applicant’s
ability to meet payments on all of his or her obligations. In addition to the creditworthiness of the applicant, the
underwriting process also includes a comparison of the value of the collateral, if any, to the proposed loan amount.
Unsecured loans tend to have higher risk, and therefore command a higher interest rate.
Loan Extensions, Renewals, Modifications and Restructuring. Extensions, renewals, modifications or
restructuring a loan, other than a loan that is classified as a TDR, requires the loan to be fully underwritten in accordance
with our policy for new loans. The borrower must be current to have a loan extended, renewed or restructured. Our
policy for modifying a mortgage loan due to the borrower’s request for changes in the terms will depend on the changes
requested. The borrower must be current and have a good payment history to have a loan modified. If the borrower is
seeking additional funds, the loan is fully underwritten in accordance with our policy for new loans. If the borrower is
seeking a reduction in the interest rate due to a decline in interest rates in the market, we generally limit our review as
follows: (1) for income producing properties and business loans, to a review of the operating results of the
property/business and a satisfactory inspection of the property, and (2) for one-to-four residential properties, to a
satisfactory inspection of the property. Our policy on restructuring a loan when the loan will be classified as a TDR
13
requires the loan to be fully underwritten in accordance with Company policy. The borrower must demonstrate the
ability to repay the loan under the new terms. When the restructuring results in a TDR, we may waive some requirements
of Company policy provided the borrower has demonstrated the ability to meet the requirements of the restructured loan
and repay the restructured loan. While our formal lending policies do not prohibit making additional loans to a borrower
or any related interest of the borrower who is past due in principal or interest more than 90 days, it has been our practice
not to make additional loans to a borrower or a related interest of the borrower if the borrower is past due more than 90
days as to principal or interest. During the most recent three fiscal years, we did not make any additional loans to a
borrower or any related interest of the borrower who was past due in principal or interest more than 90 days. All
extensions, renewals, restructurings and modifications must be approved by either the Loan Committee or the Bank
Board of Directors.
Loan Approval Procedures and Authority. The Board of Directors of the Company (the “Board of Directors”)
approved lending policies establishes loan approval requirements for our various types of loan products. Our Residential
Mortgage Lending Policy (which applies to all one-to-four family mortgage loans, including residential and mixed-use
property) establishes authorized levels of approval. One-to-four family mortgage loans that do not exceed $750,000
require two signatures for approval, one of which must be from either the President, Executive Vice President or a Senior
Vice President (collectively, “Authorized Officers”) and the other from a Senior Underwriter, Manager, Underwriter or
Junior Underwriter in the Residential Mortgage Loan Department (collectively, “Loan Officers”), and ratification by the
Management Loan Committee. For one-to-four family mortgage loans in excess of $750,000 up to $1.0 million, three
signatures are required for approval, at least two of which must be from Authorized Officers, and the other one may be a
Loan Officer, and ratification by the Management Loan Committee. The Loan Committee or the Bank Board of
Directors also must approve one-to-four family mortgage loans in excess of $1.0 million. Pursuant to our Commercial
Real Estate Lending Policy, all loans secured by commercial real estate and multi-family residential properties must be
approved by the President or the Executive Vice President, Chief of Real Estate Lending upon the recommendation of
the appropriate Senior Vice President, and ratification by the Management Loan Committee. Such loans in excess of
$1.0 million up to and including $2.5 million must also be approved by the Management Loan Committee and ratified by
the Loan Committee or the Bank Board of Directors. Such loans in excess of $2.5 million also require Loan Committee
or Bank Board of Directors approval. In accordance with our Business Credit Policy all business and SBA loans up to
$1.5 million must be approved by the Business Loan Committee and ratified by the Management Loan Committee.
Business and SBA loans in excess of $1.5 million up to $2.5 million, must be approved by the Management Loan
Committee and ratified by the Loan Committee. Commercial business and other loans require two signatures for
approval, one of which must be from an Authorized Officer. Our Construction Loan Policy requires construction loans
up to and including $1.0 million must be approved by the Senior Executive Vice President, Chief of Real Estate Lending
and the Executive Vice President of Commercial Real Estate, and ratified by the Management Loan Committee or the
Loan Committee. Such loans in excess of $1.0 million up to and including $2.5 million require the same officer
approvals, approval of the Management Loan Committee, and ratification of the Loan Committee or the Bank Board of
Directors. Construction loans in excess of $2.5 million up to and including $15.0 million require the same officer
approvals, approval by the Management Loan Committee, and approval of the Loan Committee or the Bank Board of
Directors. Construction loans in excess of $15.0 million require the same officer approvals, approval by the Management
Loan Committee, and approval of the Bank Board of Directors. Any loan, regardless of type, that deviates from our
written credit policies must be approved by the Loan Committee or the Bank Board of Directors.
For all loans originated by us, upon receipt of a completed loan application, a credit report is ordered and
certain other financial information is obtained. An appraisal of the real estate intended to secure the proposed loan is
required to be received. An independent appraiser designated and approved by us currently performs such appraisals.
Our staff appraisers review all appraisals. The Bank Board of Directors annually approves the independent appraisers
used by the Bank and approves the Bank’s appraisal policy. It is our policy to require borrowers to obtain title insurance
and hazard insurance on all real estate loans prior to closing. For certain borrowers, and/or as required by law, the Bank
may require escrow funds on a monthly basis together with each payment of principal and interest to a mortgage escrow
account from which we make disbursements for items such as real estate taxes and, in some cases, hazard insurance
premiums.
Loan Concentrations. The maximum amount of credit that the Bank can extend to any single borrower or
related group of borrowers generally is limited to 15% of the Bank’s unimpaired capital and surplus, or $67.1 million at
December 31, 2013. Applicable laws and regulations permit an additional amount of credit to be extended, equal to 10%
of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not
include real estate. See “-Regulation.” However, it is currently our policy not to extend such additional credit. At
December 31, 2013, there were no loans in excess of the maximum dollar amount of loans to one borrower that the Bank
was authorized to make. At that date, the three largest concentrations of loans to one borrower consisted of loans secured
14
by commercial real estate, multi-family income producing properties and business loans with an aggregate principal
balance of $59.2 million, $54.3 million and $48.4 million for each of the three borrowers, respectively.
Loan Servicing. At December 31, 2013, we were servicing $1.5 million of mortgage loans and $11.5 million of
SBA loans for others. Our policy is to retain the servicing rights to the mortgage and SBA loans that we sell in the
secondary market, other than non-performing loans that are sold with servicing released to the buyer. In order to increase
revenue, management intends to continue this policy.
Asset Quality
Loan Collection. When a borrower fails to make a required payment on a loan, we take a number of steps to
induce the borrower to cure the delinquency and restore the loan to current status. In the case of mortgage loans, personal
contact is made with the borrower after the loan becomes 30 days delinquent. We take a proactive approach to managing
delinquent loans, including conducting site examinations and encouraging borrowers to meet with one of our
representatives. When deemed appropriate, we develop short-term payment plans that enable borrowers to bring their
loans current, generally within six to nine months. At times, when a borrower is experiencing financial difficulties, we
may restructure a loan to enable a borrower to continue making payments when it is deemed to be in our best long-term
interest. This restructure may include reducing the interest rate or amount of the monthly payment for a specified period
of time, after which the interest rate and repayment terms revert to the original terms of the loan. We classify these loans
as “Troubled Debt Restructured”. At December 31, 2013, we had $16.0 million of loans classified as Troubled Debt
Restructured, with $13.7 million of these loans performing according to their restructured terms and $2.3 million not
performing according to their restructured terms. We review delinquencies on a loan by loan basis, diligently exploring
ways to help borrowers meet their obligations and return them back to current status, and we have increased staffing to
handle delinquent loans by hiring people experienced in loan workouts.
When the borrower has indicated that they will be unable to bring the loan current, or due to other
circumstances which, in our opinion, indicate the borrower will be unable to bring the loan current within a reasonable
time, the loan is classified as non-performing. All loans classified as non-performing, which includes all loans past due
90 days or more, are classified as non-accrual unless there is, in our opinion, compelling evidence the borrower will
bring the loan current in the immediate future. At December 31, 2013, there were six loans, which totaled $0.6 million,
past due 90 days or more and still accruing interest.
Upon classifying a loan as non-performing, we review available information and conditions that relate to the
status of the loan, including the estimated value of the loan’s collateral and any legal considerations that may affect the
borrower’s ability to continue to make payments. Based upon the available information, we will consider the sale of the
loan or retention of the loan. If the loan is retained, we may continue to work with the borrower to collect the amounts
due or start foreclosure proceedings. If a foreclosure action is initiated and the loan is not brought current, paid in full, or
refinanced before the foreclosure sale, the real property securing the loan is sold at foreclosure or by us as soon thereafter
as practicable.
Once the decision to sell a loan is made, we determine what we would consider adequate consideration to be
obtained when that loan is sold, based on the facts and circumstances related to that loan. Investors and brokers are then
contacted to seek interest in purchasing the loan. We have been successful in finding buyers for some of our non-
performing loans offered for sale that are willing to pay what we consider to be adequate consideration. Terms of the sale
include cash due upon closing of the sale, no contingencies or recourse to us, servicing is released to the buyer and time
is of the essence. These sales usually close within a reasonably short time period.
This strategy of selling non-performing loans has allowed us to optimize our return by quickly converting our
non-performing loans to cash, which can then be reinvested in earning assets. This strategy also allows us to avoid
lengthy and costly legal proceedings that may occur with non-performing loans. We sold 72 delinquent mortgage loans
totaling $33.4 million, 77 delinquent mortgage loans totaling $44.2 million, and 44 delinquent mortgage loans totaling
$27.8 million during the years ended December 31, 2013, 2012 and 2011, respectively. We recorded net charge-offs of
$4.7 million, $5.7 million and $3.7 million to the allowance for loan losses for the non-performing loans that were sold
during 2013, 2012 and 2011, respectively. We realized gross gains of $134,000, $21,000 and $167,000 on the sale of
non-performing mortgage loans for the years ended December 31, 2013, 2012 and 2011, respectively. We realized gross
losses of $81,000 and $69,000 on the sale of non-performing mortgage loans for the years ended December 31, 2013 and
2012, respectively. We did not record any gross losses for the year ended December 31, 2011. There can be no
assurances that we will continue this strategy in future periods, or if continued, we will be able to find buyers to pay
adequate consideration.
15
On mortgage loans or loan participations purchased by us for whom the seller retains the servicing rights, we
receive monthly reports with which we monitor the loan portfolio. Based upon servicing agreements with the servicers
of the loans, we rely upon the servicer to contact delinquent borrowers, collect delinquent amounts and initiate
foreclosure proceedings, when necessary, all in accordance with applicable laws, regulations and the terms of the
servicing agreements between us and our servicing agents. The servicers are required to submit monthly reports on their
collection efforts on delinquent loans. At December 31, 2013, we held $193.6 million of loans that were serviced by
others.
In the case of commercial business or other loans, we generally send the borrower a written notice of non-
payment when the loan is first past due. In the event payment is not then received, additional letters and phone calls
generally are made in order to encourage the borrower to meet with one of our representatives to discuss the
delinquency. If the loan still is not brought current and it becomes necessary for us to take legal action, which typically
occurs after a loan is delinquent 90 days or more, we may attempt to repossess personal or business property that secures
an SBA loan, commercial business loan or consumer loan.
Troubled Debt Restructured . We have restructured certain problem loans for borrowers who are experiencing
financial difficulties by either: reducing the interest rate until the next reset date, extending the amortization period
thereby lowering the monthly payments, deferring a portion of the interest payment, or changing the loan to interest only
payments for a limited time period. At times, certain problem loans have been restructured by combining more than one
of these options. These restructurings have not included a reduction of principal balance. We believe that restructuring
these loans in this manner will allow certain borrowers to become and remain current on their loans. These restructured
loans are classified as troubled debt restructured (“TDR”). Loans which have been current for six consecutive months at
the time they are restructured as TDR remain on accrual status. Loans which were delinquent at the time they are
restructured as a TDR are placed on non-accrual status until they have made timely payments for six consecutive
months.
The following table shows our recorded investment in loans classified as TDR that are performing according to
their restructured terms at the periods indicated:
(Dollars in thousands)
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Construction
Commercial business and other
$
Total performing troubled debt restructured
$
2013
2012
At December 31,
2011
2010
2009
3,087
3,686
2,692
364
746
3,127
13,702
$
$
2,347
8,499
2,336
374
3,805
2,540
19,901
$
$
9,412
2,499
795
-
5,888
2,000
20,594
$
$
7,946
5,815
206
-
-
-
13,967
$
$
478
1,441
575
-
-
-
2,494
Loans that are restructured as TDR but are not performing in accordance with the restructured terms are
excluded from the TDR table above, as they are placed on non-accrual status and reported as non-performing loans. At
December 31, 2013 and 2012, there was one loan for $2.3 million and seven loans totaling $11.6 million, respectively,
which were restructured as TDR which were not performing in accordance with their restructured terms.
Delinquent Loans and Non-performing Assets. We generally discontinue accruing interest on delinquent loans
when a loan is 90 days past due or foreclosure proceedings have been commenced, whichever first occurs. At that time,
previously accrued but uncollected interest is reversed from income. Loans in default 90 days or more as to their
maturity date but not their payments, however, continue to accrue interest as long as the borrower continues to remit
monthly payments.
16
The following table shows our non-performing assets, including Loans held for sale, at the dates indicated. During the
years ended December 31, 2013, 2012 and 2011, the amounts of additional interest income that would have been
recorded on non-accrual loans, had they been current, totaled $3.4 million, $7.3 million and $7.5 million, respectively.
These amounts were not included in our interest income for the respective periods.
(Dollars in thousands)
Loans 90 days or more past due
and still accruing:
Multi-family residential
Commercial real estate
One-to-four family - residential
Commercial Business and other
Total
Non-accrual mortgage loans:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Co-operative apartments
Construction
Total
Non-accrual non-mortgage loans:
Small Business Administration
Commercial Business and other
Total
Total non-accrual loans
Total non-performing loans
Other non-performing assets:
Real Estate Owned
Investment securities
Total
2013
2012
At December 31,
2011
2010
2009
$
$
52
-
15
539
606
$
-
-
-
644
644
13,682
9,962
9,063
13,250
57
-
46,014
-
2,348
2,348
48,362
48,968
2,985
1,871
4,856
16,486
15,640
18,280
13,726
234
7,695
72,061
283
16,860
17,143
89,204
89,848
5,278
3,332
8,610
6,287
92
-
-
6,379
19,946
19,895
28,429
12,766
152
14,721
95,909
493
14,660
15,153
111,062
117,441
3,179
2,562
5,741
$
$
103
3,328
-
6
3,437
35,633
22,806
30,478
10,695
-
4,465
104,077
1,159
3,419
4,578
108,655
112,092
1,588
5,134
6,722
-
471
2,784
-
3,255
27,483
18,153
23,422
4,959
78
1,639
75,734
1,232
3,151
4,383
80,117
83,372
2,262
5,134
7,396
Total non-performing assets
$
53,824
$
98,458
$
123,182
$
118,814
$
90,768
Non-performing loans to gross loans
Non-performing assets to total assets
1.43%
1.14%
2.79%
2.21%
3.65%
2.87%
3.44%
2.75%
2.60%
2.19%
17
The following table shows our delinquent loans that are less than 90 days past due and still accruing interest at
the periods indicated:
December 31, 2013
60 - 89
days
30 - 59
days
December 31, 2012
30 - 59
60 - 89
days
days
(In thousands)
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Co-operative apartments
Construction loans
Small Business Administration
Taxi medallion
Commercial business and other
Total
$
$
2,555
523
1,099
517
-
-
-
-
2
4,696
$
$
14,102
5,029
14,017
3,927
-
-
105
-
187
37,367
$
$
4,827
3,622
3,368
1,886
-
-
-
-
6
13,709
$
$
24,059
9,764
21,012
3,407
-
2,462
404
-
2
61,110
Hurricane Sandy. Hurricane Sandy caused significant damage to numerous homes and businesses throughout
the New York Metropolitan area, our primary market, in late October 2012. In working with its borrowers and depositors
affected by this hurricane, the Bank had entered into payment agreements on 30 loans totaling $18.9 million. These
agreements originally provided for partial payment deferrals, generally for 90 days, but some agreements provide for
longer deferral periods. These agreements were intended to provide the borrowers the opportunity to fully assess any
damage to the properties, apply for and receive insurance proceeds, and repair damages to the properties. At December
31, 2013, 14 loans totaling $7.5 million remain under these agreements, of which eight loans totaling $5.6 million are
considered non-performing and we have placed them on non-accrual status until they reestablish a payment history and
bring the loans current. Four of the remaining loans, which are current under their repayment plans, have had their
agreements extended into 2014 to give the borrowers additional time to recover. Two loans are delinquent under their
repayment plans. Each borrower was required, commencing at the end of the deferral period, to make their regularly
scheduled loan payments plus a portion of the deferred amounts. As of December 31, 2013, the Bank has not incurred,
and does not expect to incur, any losses related to these agreements.
Other Real Estate Owned. We aggressively market our Other Real Estate Owned (“OREO”) properties. At
December 31, 2013, we owned 12 properties with a combined fair value of $3.0 million. At December 31, 2012, we
owned 11 properties with a combined fair value of $5.3 million. At December 31, 2011, we owned seven properties with
a combined fair value of $3.2 million.
Investment Securities. Non-performing investment securities included one pooled trust preferred security with a
fair value of $1.9 million at December 31, 2013 and two pooled trust preferred securities with a fair value totaling $3.3
million at December 31, 2012.
Environmental Concerns Relating to Loans. We currently obtain environmental reports in connection with the
underwriting of commercial real estate loans, and typically obtain environmental reports in connection with the
underwriting of multi-family loans. For all other loans, we obtain environmental reports only if the nature of the current
or, to the extent known to us, prior use of the property securing the loan indicates a potential environmental risk.
However, we may not be aware of such uses or risks in any particular case, and, accordingly, there is no assurance that
real estate acquired by us in foreclosure is free from environmental contamination or that, if any such contamination or
other violation exists, whether we will have any liability.
Classified Assets. Our policy is to review our assets, focusing primarily on the loan portfolio, OREO and the
investment portfolios, to ensure that the credit quality is maintained at the highest levels. When weaknesses are
identified, immediate action is taken to correct the problem through direct contact with the borrower or issuer. We then
monitor these assets, and, in accordance with our policy and current regulatory guidelines, we designate them as “Special
Mention,” which is considered a “Criticized Asset,” and “Substandard,” “Doubtful,” or “Loss” which are considered
“Classified Assets,” as deemed necessary. These loan designations are updated quarterly. We designate an asset as
Substandard when a well-defined weakness is identified that jeopardizes the orderly liquidation of the debt. We
designate an asset as Doubtful when it displays the inherent weakness of a Substandard asset with the added provision
18
that collection of the debt in full, on the basis of existing facts, is highly improbable. We designate an asset as Loss if it
is deemed the debtor is incapable of repayment. We do not hold any loans designated as loss, as loans that are
designated as Loss are charged to the Allowance for Loan Losses. Assets that are non-accrual are designated as
Substandard, Doubtful or Loss. We designate an asset as Special Mention if the asset does not warrant designation
within one of the other categories, but does contain a potential weakness that deserves closer attention. Our total
Criticized and Classified assets were $130.2 million at December 31, 2013, a decrease of $94.0 million from $224.2
million at December 31, 2012.
The following table sets forth the Bank's Criticized and Classified assets at December 31, 2013:
(In thousands)
Special Mention
Substandard
Doubtful
Loss
Total
Loans:
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Co-operative apartments
Construction loans
Small Business Administration
Commercial business and other
Total loans
Investment Securities: (1)
Pooled trust preferred securities
Total investment securities
Other Real Estate Owned
Total
$
$
$
9,940
13,503
7,992
2,848
-
746
310
7,314
42,653
-
-
-
42,653
$
19,089
16,820
14,898
14,026
59
-
-
8,450
73,342
11,134
11,134
2,985
87,461
$
$
-
-
-
-
-
-
-
50
50
-
-
-
50
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
$
29,029
30,323
22,890
16,874
59
746
310
15,814
116,045
11,134
11,134
2,985
130,164
$
19
The following table sets forth the Bank's Criticized and Classified assets at December 31, 2012:
(In thousands)
Special Mention
Substandard
Doubtful
Loss
Total
Loans:
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Co-operative apartments
Construction loans
Small Business Administration
Commercial business and other
Total loans
Investment Securities: (1)
Pooled trust preferred securities
Private issue CMO
Total investment securities
Other Real Estate Owned
Total
$
$
16,345
11,097
13,104
5,223
103
3,805
323
3,044
53,044
-
-
-
$
22,769
27,877
26,506
15,328
237
10,598
212
18,419
121,946
16,189
26,429
42,618
$
-
-
-
-
-
-
244
1,080
1,324
-
-
-
$
-
53,044
5,278
169,842
$
-
1,324
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
39,114
38,974
39,610
20,551
340
14,403
779
22,543
176,314
16,189
26,429
42,618
5,278
224,210
$
(1) Our investment securities are classified as securities available for sale and as such are carried at their fair value in our
Consolidated Financial Statements. The securities above had a fair value of $7.9 million and $35.2 million at December 31,
2013 and 2012, respectively. Under current applicable regulatory guidelines, we are required to disclose the classified
investment securities, as shown in the tables above, at their book values (amortized cost, or fair value for securities that are
under the fair value option). Additionally, the requirement is only for the Bank’s securities. Flushing Financial Corporation had
two private issue trust preferred securities classified as Substandard at December 31, 2012, with a combined market value of
$0.8 million. Flushing Financial Corporation did not have any securities classified or criticized at December 31, 2013.
On a quarterly basis all mortgage loans that are classified as Substandard or Doubtful are internally reviewed
for impairment, based on updated cash flows for income producing properties, or updated independent appraisals. The
loan balances of collateral dependent loans reviewed for impairment are then compared to the loans updated fair value.
We consider fair value of collateral dependent loans to be 85% of the appraised or internally estimated value of the
property. The balance which exceeds fair value is generally charged-off against the allowance for loan losses. At
December 31, 2013, the current loan-to-value ratio on our collateral dependent loans reviewed for impairment was
46.2%.
We classify investment securities as Substandard when, based on an internal review, we concluded the
securities are below investment grade. We have classified a total of three investment securities that are held at the Bank
as Substandard at December 31, 2013. Our classified investment securities at December 31, 2013 held by the Bank
include three issues of pooled trust preferred securities. The investment securities which are classified as Substandard at
December 31, 2013 are securities that were rated investment grade when we purchased them. These securities have each
been subsequently downgraded by at least one rating agency to below investment grade. Through December 31, 2013,
one of the pooled trust preferred securities is not paying principal and interest as scheduled. The remaining investment
securities continued to pay interest and principal as scheduled at December 31, 2013. We test each of these securities
quarterly, through an independent third party, for impairment.
There were $1.4 million, $0.8 million and $1.6 million in credit related other-than-temporary impairment
(“OTTI”) charges recorded for the years ended December 31, 2013, 2012 and 2011, respectively. During 2013 we
recorded OTTI charges of $1.4 million on four private issue collateralized mortgage obligations. During 2012 we
recorded OTTI charges of $0.8 million on five private issue collateralized mortgage obligations. During 2011 we
recorded OTTI charges of $1.6 million on five private issue collateralized mortgage obligations.
20
Allowance for Loan Losses
We have established and maintain on our books an allowance for loan losses that is designed to provide a
reserve against estimated losses inherent in our overall loan portfolio. The allowance is established through a provision
for loan losses based on management’s evaluation of the risk inherent in the various components of the loan portfolio
and other factors, including historical loan loss experience (which is updated quarterly), current economic conditions,
delinquency and non-accrual trends, classified loan levels, risk in the portfolio and volumes and trends in loan types,
recent trends in charge-offs, changes in underwriting standards, experience, ability and depth of our lenders, collection
policies and experience, internal loan review function and other external factors. Additionally, we segregated our loans
into two portfolios based on year of origination. One portfolio was reviewed for loans originated after December 31,
2009 and a second portfolio for loans originated prior to January 1, 2010. Our decision to segregate the portfolio based
upon origination dates was based on changes made in our underwriting standards during 2009. By the end of 2009, all
loans were being underwritten based on revised and tightened underwriting standards. Loans originated prior to 2010
have a higher delinquency rate and loss history. Each of the years in the portfolio for loans originated prior to 2010 has a
similar delinquency rate. The determination of the amount of the allowance for loan losses includes estimates that are
susceptible to significant changes due to changes in appraisal values of collateral, national and local economic conditions
and other factors. We review our loan portfolio by separate categories with similar risk and collateral characteristics.
Impaired loans are segregated and reviewed separately. All non-accrual loans are classified impaired. Impaired loans
secured by collateral are reviewed based on the fair value of their collateral. For non-collateralized impaired loans,
management estimates any recoveries that are anticipated for each loan. In connection with the determination of the
allowance, the market value of collateral ordinarily is evaluated by our staff appraiser. On a quarterly basis, the estimated
values of impaired mortgage loans are internally reviewed, based on updated cash flows for income producing
properties, and at times an updated independent appraisal is obtained. The loan balances of collateral dependent
impaired loans are then compared to the property’s updated fair value. We consider fair value of collateral dependent
loans to be 85% of the appraised or internally estimated value of the property. The balance which exceeds fair value is
generally charged-off. When evaluating a loan for impairment, we do not rely on guarantees, and the amount of
impairment, if any, is based on the fair value of the collateral. We do not carry loans at a value in excess of the fair value
due to a guarantee from the borrower. Impaired mortgage loans that were written down resulted from quarterly reviews
or updated appraisals that indicated the properties’ estimated value had declined from when the loan was originated. The
Board of Directors reviews and approves the adequacy of the allowance for loan losses on a quarterly basis.
In assessing the adequacy of the allowance, we review our loan portfolio by separate categories which have
similar risk and collateral characteristics, e.g., multi-family residential, commercial real estate, one-to-four family mixed-
use property, one-to-four family residential, co-operative apartment, construction, SBA, commercial business, taxi
medallion and consumer loans. General provisions are established against performing loans in our portfolio in amounts
deemed prudent based on our qualitative analysis of the factors, including the historical loss experience, delinquency
trends and local economic conditions. We incurred total net charge-offs of $13.3 million and $20.2 million during the
years ended December 31, 2013 and 2012, respectively. The national and local economies were generally considered to
be in a recession from December 2007 through the middle of 2009. This resulted in increased unemployment and
declining property values, although the property value declines in our market, the New York City metropolitan area,
have not been as great as many other areas of the country. While the national and local economies have shown signs of
improvement since the middle of 2010, improvements in unemployment have lagged, with the unemployment rate
decreasing but remaining at an elevated level. The high level of unemployment has had a negative effect on our loan
portfolio. Non-performing loans totaled $49.0 million and $89.8 million at December 31, 2013 and 2012, respectively.
The Bank’s underwriting standards generally require a loan-to-value ratio of no more than 75% at the time the loan is
originated. At December 31, 2013, the outstanding principal balance of our impaired mortgage loans was less than 47%
of the estimated current value of the supporting collateral, after considering the charge-offs that have been recorded. A
provision for loan losses of $13.9 million, $21.0 million and $21.5 million was recorded for the years ended December
31, 2013, 2012 and 2011, respectively. Management has concluded, and the Board of Directors has concurred, that at
December 31, 2013, the allowance was sufficient to absorb losses inherent in our loan portfolio.
Our determination as to the classification of our assets and the amount of our valuation allowance is subject to
review by our regulators, which can require the establishment of additional general allowances or specific loss
allowances or require charge-offs. Such authorities may require us to make additional provisions to the allowance based
on their judgments about information available to them at the time of their examination. A policy statement provides
guidance for examiners in determining whether the levels of general valuation allowances for banking institutions are
adequate. The policy statement requires that if a bank’s general valuation allowance policies and procedures are deemed
to be inadequate, recommendations for correcting deficiencies, including any examiner concerns regarding the level of
the allowance, should be noted in the report of examination. Additional supervisory action may also be taken based on
21
the magnitude of the observed shortcomings in the allowance process, including the materiality of any error in the
reported amount of the allowance.
Management believes that our current allowance for loan losses is adequate in light of current economic
conditions, the composition of our loan portfolio, the level and type of delinquent loans, our level of classified loans,
charge-offs recorded and other available information and the Board of Directors concurs in this belief. At December 31,
2013, the total allowance for loan losses was $31.8 million, representing 64.89% of non-performing loans and 59.04% of
non-performing assets, compared to 34.62% of non-performing loans and 31.59% of non-performing assets at December
31, 2012. We continue to monitor and, as necessary, modify the level of our allowance for loan losses in order to
maintain the allowance at a level which we consider adequate to provide for probable loan losses based on available
information.
Many factors may require additions to the allowance for loan losses in future periods beyond those currently
revealed. These factors include further adverse changes in economic conditions, changes in interest rates and changes in
the financial capacity of individual borrowers (any of which may affect the ability of borrowers to make repayments on
loans), changes in the real estate market within our lending area and the value of collateral, or a review and evaluation of
our loan portfolio in the future. The determination of the amount of the allowance for loan losses includes estimates that
are susceptible to significant changes due to changes in appraised values of collateral, national and local economic
conditions, interest rates and other factors. In addition, our overall level of credit risk inherent in our loan portfolio can
be affected by the loan portfolio’s composition. At December 31, 2013, multi-family residential, commercial real estate,
construction and one-to-four family mixed-use property mortgage loans, totaled 82.5% of our gross loans. The greater
risk associated with these loans, as well as business loans, could require us to increase our provisions for loan losses and
to maintain an allowance for loan losses as a percentage of total loans that is in excess of the allowance we currently
maintain. Provisions for loan losses are charged against net income. See “—Lending Activities” and “—Asset Quality.”
22
The following table sets forth changes in, and the balance of, our allowance for loan losses.
(Dollars in thousands)
Balance at beginning of year
Provision for loan losses
Loans charged-off:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Co-operative apartment
Construction
SBA
Commercial business and other loans
Total loans charged-off
Recoveries:
Mortgage loans
SBA, commercial business and other loans
Total recoveries
Net charge-offs
At and for the years ended December 31,
2011
2012
2010
2009
2013
$
31,104
$
30,344
$
27,699
$
20,324
$
11,028
13,935
21,000
21,500
21,000
19,500
(3,585)
(1,051)
(4,206)
(701)
(108)
(2,678)
(457)
(2,057)
(14,843)
(6,016)
(2,746)
(4,286)
(1,583)
(62)
(4,591)
(324)
(1,661)
(21,269)
(6,807)
(5,172)
(2,644)
(2,226)
-
(1,088)
(871)
(642)
(19,450)
(5,790)
(2,685)
(2,580)
(236)
-
(1,879)
(925)
(500)
(14,595)
(2,327)
(728)
(1,009)
(284)
-
(1,075)
(1,106)
(3,842)
(10,371)
1,407
173
1,580
838
191
1,029
523
72
595
183
787
970
1
166
167
(13,263)
(20,240)
(18,855)
(13,625)
(10,204)
Balance at end of year
$
31,776
$
31,104
$
30,344
$
27,699
$
20,324
Ratio of net charge-offs during the year
to average loans outstanding during the year
0.41%
0.64%
0.59%
0.42%
0.33%
Ratio of allowance for loan losses to
gross loans at end of the year
Ratio of allowance for loan losses to
0.93%
0.97%
0.94%
0.85%
0.63%
non-performing loans at the end of the year
64.89%
34.62%
25.84%
24.71%
24.38%
Ratio of allowance for loan losses to
non-performing assets at the end of the year
59.04%
31.59%
24.63%
23.31%
22.39%
23
The following table sets forth our allocation of the allowance for loan losses to the total amount of loans in each of the categories listed at the dates
indicated. The numbers contained in the “Amount” column indicate the allowance for loan losses allocated for each particular loan category. The numbers
contained in the column entitled “Percentage of Loans in Category to Total Loans” indicate the total amount of loans in each particular category as a percentage
of our loan portfolio.
Loan Category
Amount
2013
Percent
of Loans in
Category to
Total loans
2012
Percent
of Loans in
Category to
Total loans
Amount
At December 31,
2011
Percent
of Loans in
Category to
Total loans
Amount
(Dollars in thousands)
2010
Percent
of Loans in
Category to
Total loans
Amount
2009
Percent
of Loans in
Category to
Total loans
Amount
$
12,084
4,959
50.02 %
14.97
$
13,001
5,705
47.62 %
16.00
$
11,267
5,210
43.28 %
18.07
$
9,007
4,905
38.41 %
20.33
$
6,581
4,395
36.17 %
21.42
Mortgage loans:
Multi-family residential
Commercial real estate
One-to-four family
mixed-use property
One-to-four family
residential
Co-operative apartment
Construction
6,328
2,079
104
444
Gross mortgage loans
25,998
Non-mortgage loans:
Small Business Administration
Taxi Medallion
Commercial business and other
Gross non-mortgage loans
458
-
5,320
5,778
17.40
5.66
0.30
0.12
88.47
0.23
0.38
10.92
11.53
5,960
1,999
46
66
26,777
505
7
3,815
4,327
19.79
6.18
0.20
0.45
90.24
0.29
0.31
9.16
9.76
5,314
1,649
80
668
24,188
987
41
5,128
6,156
21.59
6.86
0.17
1.47
91.44
0.44
1.69
6.43
8.56
5,997
938
17
589
21,453
1,303
639
4,304
6,246
22.36
7.40
0.19
2.32
91.01
0.54
2.71
5.74
8.99
4,339
844
17
1,281
17,457
965
583
1,319
2,867
23.24
7.80
0.20
3.04
91.87
0.55
1.92
5.66
8.13
Total loans
$
31,776
100.00 %
$
31,104
100.00 %
$
30,344
100.00 %
$
27,699
100.00 %
$
20,324
100.00 %
24
Investment Activities
General. Our investment policy, which is approved by the Board of Directors, is designed primarily to manage
the interest rate sensitivity of our overall assets and liabilities, to generate a favorable return without incurring undue
interest rate and credit risk, to complement our lending activities and to provide and maintain liquidity. In establishing
our investment strategies, we consider our business and growth strategies, the economic environment, our interest rate
risk exposure, our interest rate sensitivity “gap” position, the types of securities to be held, and other factors. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview—Management
Strategy” in Item 7 of this Annual Report.
Although we have authority to invest in various types of assets, we primarily invest in mortgage-backed
securities, securities issued by mutual or bond funds that invest in government and government agency securities,
municipal bonds and corporate bonds. We did not hold any issues of foreign sovereign debt at December 31, 2013 and
2012.
Our Investment Committee meets quarterly to monitor investment transactions and to establish investment
strategy. The Board of Directors reviews the investment policy on an annual basis and investment activity on a monthly
basis.
We classify our investment securities as available for sale. We carry some of our investments under the fair
value option. Unrealized gains and losses for investments carried under the fair value option are included in our
Consolidated Statements of Income. Unrealized gains and losses on the remaining investment portfolio, other than
unrealized credit losses considered other than temporary, are excluded from earnings and included in Accumulated Other
Comprehensive Income (a separate component of equity), net of taxes. At December 31, 2013, we had $1,017.8 million
in securities available for sale, which represented 21.56% of total assets. These securities had an aggregate market value
at December 31, 2013 that was approximately 2.4 times the amount of our equity at that date.
There were $1.4 million, $0.8 million and $1.6 million in credit related OTTI charges recorded for the years
ended December 31, 2013, 2012 and 2011, respectively. During 2013 we recorded OTTI charges of $1.4 million on four
private issue collateralized mortgage obligations. During 2012 we recorded OTTI charges of $0.8 million on five private
issue collateralized mortgage obligations. During 2011 we recorded OTTI charges of $1.6 million on five private issue
collateralized mortgage obligations. We sold these private issue collateralized mortgage obligations during 2013. As a
result of the magnitude of our holdings of securities available for sale, changes in interest rates could produce significant
changes in the value of such securities and could produce significant fluctuations in our operating results and equity.
(See Notes 6 and 17 of Notes to Consolidated Financial Statements, included in Item 8 of this Annual Report.)
25
The table below sets forth certain information regarding the amortized cost and market values of our securities
portfolio, interest-earning deposits and federal funds sold, at the dates indicated. Securities available for sale are
recorded at market value. (See Notes 6 and 17 of Notes to Consolidated Financial Statements, included in Item 8 of this
Annual Report.)
2013
At December 31,
2012
2011
Amortized
Cost
Market
Value
Amortized
Cost
Market
Value
Amortized
Cost
Market
Value
(In thousands)
Securities available for sale
Bonds and other debt securities:
U.S. government and agencies
Municipal securities
Corporate debentures
Total bonds and other debt securities
$
Mutual funds
Equity securities:
Common stock
Preferred stock
Total equity securities
Mortgage-backed securities:
FNMA
REMIC and CMO
FHLMC
GNMA
Total mortgage-backed securities
$
-
127,967
100,362
228,329
21,565
888
17,272
18,160
217,615
494,984
13,297
38,974
764,870
-
123,423
101,711
225,134
21,565
888
14,047
14,935
212,322
489,670
13,290
40,874
756,156
$
$
$
31,409
74,228
83,389
189,026
31,513
75,297
87,485
194,295
21,843
21,843
718
17,079
17,797
168,040
453,468
22,562
43,211
687,281
718
12,597
13,315
175,929
474,050
23,202
46,932
720,113
$
1,980
4,534
20,777
27,291
21,369
790
21,233
22,023
175,627
460,824
22,556
62,040
721,047
2,039
4,531
20,592
27,162
21,369
790
15,921
16,711
182,630
473,639
23,387
67,632
747,288
Total securities available for sale
1,032,924
1,017,790
915,947
949,566
791,730
812,530
Interest-earning deposits and
Federal funds sold
23,748
23,748
31,279
31,279
48,944
48,944
Total
$
1,056,672
$
1,041,538
$
947,226
$
980,845
$
840,674
$
861,474
Mortgage-backed securities. At December 31, 2013, we had $756.2 million invested in mortgage-backed
securities, of which $10.0 million was invested in adjustable-rate mortgage-backed securities. The mortgage loans
underlying these adjustable-rate securities generally are subject to limitations on annual and lifetime interest rate
increases. We anticipate that investments in mortgage-backed securities may continue to be used in the future to
supplement mortgage-lending activities. Mortgage-backed securities are more liquid than individual mortgage loans and
may be used more easily to collateralize our obligations, including collateralizing of the governmental deposits of the
Bank.
26
The following table sets forth our mortgage-backed securities purchases, sales and principal repayments for the years
indicated:
2013
For the years ended December 31,
2012
(In thousands)
2011
Balance at beginning of year
$
720,113
$
747,288
$
754,077
Purchases of mortgage-backed securities
357,022
141,514
122,530
Amortization of unearned premium, net of
accretion of unearned discount
Net change in unrealized gains on mortgage-backed
securities available for sale
(3,577)
(3,269)
(2,587)
(41,546)
6,591
22,124
Net realized gains (losses) recorded on mortgage-backed
securities carried at fair value
Net change in interest due on securities carried at fair value
(589)
(62)
(381)
(51)
Sales of mortgage-backed securities
(126,848)
(12,590)
(636)
(46)
-
Other-than-temporary impairment charges
(1,419)
(776)
(1,578)
Principal repayments received on
mortgage-backed securities
(146,938)
(158,213)
(146,596)
Net increase (decrease) in mortgage-backed securities
36,043
(27,175)
(6,789)
Balance at end of year
$
756,156
$
720,113
$
747,288
While mortgage-backed securities carry a reduced credit risk as compared to whole loans, such securities
remain subject to the risk that a fluctuating interest rate environment, along with other factors such as the geographic
distribution of the underlying mortgage loans, may alter the prepayment rate of such mortgage loans and so affect both
the prepayment speed and value of such securities. We do not own any derivative instruments that are extremely
sensitive to changes in interest rates.
27
The table below sets forth certain information regarding the amortized cost, fair value, annualized weighted average yields and maturities of our investment in debt
and equity securities and interest-earning deposits at December 31, 2013. The stratification of balances is based on stated maturities. Equity securities are shown as
immediately maturing, except for preferred stocks with stated redemption dates, which are shown in the period they are scheduled to be redeemed. Assumptions for
repayments and prepayments are not reflected for mortgage-backed securities. We carry these investments at their estimated fair value in the consolidated financial
statements.
Securities available for sale
Bonds and other debt securities:
Municipal securities
Corporate debentures
Total bonds and other debt securities
Mutual funds
Equity securities:
Common stock
Preferred stock
Total equity securities
Mortgage-backed securities:
FNMA
REMIC and CMO
FHLMC
GNMA
Total mortgage-backed securities
One year or Less
One to Five Years
Five to Ten Years
More than Ten Years
Total Securities
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
(Dollars in thousands)
Amortized
Cost
Weighted
Average
Yield
Average
Remaining
Years to
Maturity
Amortized
Cost
Estimated Weighted
Average
Yield
Fair
Value
$
1,000
9,859
10,859
$
0.29 %
0.53
0.50
-
30,945
30,945
%
$
-
1.47
1.47
9,075
55,000
64,075
4.25
1.79
2.14
$
117,892
4,558
122,450
4.40 %
0.60
4.26
$
17.41
5.88
12.34
127,967
100,362
228,329
$
123,423
101,711
225,134
4.36 %
1.51
3.11
21,565
1.95
-
-
N/A
21,565
21,565
1.95
-
-
-
-
83,393
35,784
2,571
-
121,748
-
-
-
-
2.65
4.65
4.71
-
3.28
-
-
-
-
211
426
33
-
670
-
-
-
-
-
5.99
3.72
4.41
-
4.47
-
-
-
-
11
-
-
-
11
-
-
-
6.00
-
-
-
6.00
0.25
888
17,272
18,160
134,000
458,774
10,693
38,974
642,441
3.48
4.20
4.17
3.27
3.06
2.77
4.55
3.19
N/A
N/A
N/A
14.23
23.36
12.11
22.14
20.50
888
17,272
18,160
888
14,047
14,935
217,615
494,984
13,297
38,974
764,870
212,322
489,670
13,290
40,874
756,156
3.48
4.20
4.17
3.04
3.18
3.15
4.55
3.21
0.25
Interest-earning deposits
23,748
-
-
-
-
N/A
23,748
23,748
Total
$
56,183
0.95 %
$
31,615
1.53 %
$
185,823
2.89 %
$
783,051
3.38 %
18.63
$
1,056,672
$
1,041,538
3.11 %
28
Sources of Funds
General. Deposits, FHLB-NY borrowings, repurchase agreements, principal and interest payments on
loans, mortgage-backed and other securities, and proceeds from sales of loans and securities are our primary sources
of funds for lending, investing and other general purposes.
Deposits. We offer a variety of deposit accounts having a range of interest rates and terms. Our deposits
primarily consist of savings accounts, money market accounts, demand accounts, NOW accounts and certificates of
deposit. We have a relatively stable retail deposit base drawn from our market area through our 17 full-service
offices. We seek to retain existing depositor relationships by offering quality service and competitive interest rates,
while keeping deposit growth within reasonable limits. It is management’s intention to balance its goal to maintain
competitive interest rates on deposits while seeking to manage its cost of funds to finance its strategies.
In addition to our full-service offices we have an internet branch “iGObanking.com®”, which currently
offers savings accounts, money market accounts, checking accounts, and certificates of deposit. This allows us to
compete on a national scale without the geographical constraints of physical locations. Since the number of U.S.
households with accounts at Web-only banks has grown, our strategy was to join the market place by creating a
branch that offers clients the simplicity and flexibility of a virtual online bank, which is a division of a stable,
traditional bank that was established in 1929. At December 31, 2013 and 2012, total deposits for the internet branch
were $293.3 million and $294.1 million, respectively.
We have a government banking division, which prior to the Merger operated as the Commercial Bank, a
New York State-chartered commercial bank, which provided banking services to public municipalities, including
counties, cities, towns, villages, school districts, libraries, fire districts, and the various courts throughout the New
York City metropolitan area as an additional source of deposits. At December 31, 2013 and 2012, total deposits in
our government banking division totaled $867.1 million and $697.0 million, respectively.
Our core deposits, consisting of savings accounts, NOW accounts, money market accounts, and non-
interest bearing demand accounts, are typically more stable and lower costing than other sources of funding.
However, the flow of deposits into a particular type of account is influenced significantly by general economic
conditions, changes in prevailing money market and other interest rates, and competition. We experienced an
increase in our Due to depositors’ during 2013 of $217.3 million. During the year ended December 31, 2013, the
cost of Due to depositors’ decreased 27 basis points to 1.09% from 1.36% for the year ended December 31, 2012.
This decrease in the cost of deposits is primarily attributable to the Bank’s reducing the rates it pays on its deposit
products. While we are unable to predict the direction of future interest rate changes, if interest rates rise during
2014, the result could be an increase in our cost of deposits, which could reduce our net interest margin. Similarly, if
interest rates remain at their current level or decline in 2014, we could see a decline in our cost of deposits, which
could increase our net interest margin.
Included in deposits are certificates of deposit with balances of $100,000 or more (excluding brokered
deposits issued in $1,000.00 amounts under a master certificate of deposit) totaling $335.4 million, $393.7 million
and $565.7 million at December 31, 2013, 2012 and 2011, respectively.
We utilize brokered deposits as an additional funding source and to assist in the management of our interest
rate risk. We have obtained brokered certificates of deposit when the interest rate on these deposits is below the
prevailing interest rate for non-brokered certificates of deposit with similar maturities in our market, or when
obtaining them allowed us to extend the maturities of our deposits at favorable rates compared to borrowing funds
with similar maturities, when we are seeking to extend the maturities of our funding to assist in the management of
our interest rate risk. Brokered certificates of deposit provide a large deposit for us at a lower operating cost as
compared to non-brokered certificates of deposit since we only have one account to maintain versus several
accounts with multiple interest and maturity checks. The Depository Trust Company is used as the clearing house,
maintaining each deposit under the name of CEDE & Co. These deposits are transferable just like a stock or bond
investment and the customer can open the account with only a phone call, just like buying a stock or bond. Unlike
non-brokered certificates of deposit, where the deposit amount can be withdrawn with a penalty for any reason,
including increasing interest rates, a brokered certificate of deposit can only be withdrawn in the event of the death,
or court declared mental incompetence, of the depositor. This allows us to better manage the maturity of our
deposits and our interest rate risk. We also utilized brokers to obtain money market account deposits. The rate we
pay on brokered money market accounts is the same or below the rate we pay on non-brokered money market
accounts, and the rate is agreed to in a contract between the Bank and the broker. These accounts are similar to
29
brokered certificates of deposit accounts in that we only maintain one account for the total deposit per broker, with
the broker maintaining the detailed records of each depositor.
We also offer access to FDIC insurance coverage in excess of $250,000 through a Certificate of Deposit
Account Registry Service (“CDARS®”) and through an Insured Cash Sweep service (“ICS”). CDARS® and ICS
are deposit placement services. These networks arrange for placement of funds into certificate of deposit accounts or
money market accounts issued by other member banks of the network in increments of less than $250,000 to ensure
that both principal and interest are eligible for full FDIC deposit insurance. This allows us to accept deposits in
excess of $250,000 from a depositor, and place the deposits through the network to other member banks to provide
full FDIC deposit insurance coverage. We may receive deposits from other member banks in exchange for the
deposits we place into the network. We may also obtain deposits from other network member banks without placing
deposits into the network. We will obtain deposits in this manner primarily as a short-term funding source. We also
can place deposits with other member banks without receiving deposits from other member banks. Depositors are
allowed to withdraw funds, with a penalty, from these accounts at one or more of the member banks that hold the
deposits.
We also utilize brokers to obtain money market account deposits. These accounts are similar to brokered
certificate of deposit accounts in that we only maintain one account for the total deposit per broker, with the broker
maintaining the detailed records of each depositor.
Brokered deposits and funds obtained through the CDARS® and ICS networks are classified as brokered
deposits for financial reporting purposes. At December 31, 2013, we had $517.4 million classified as brokered
deposits, with $446.9 million in brokered certificates of deposit and $70.5 million in brokered money market
accounts. The brokered certificates of deposit include $4.9 million obtained through the CDARS® network and the
brokered money market accounts include $20.3 million obtained through the ICS network.
30
The following table sets forth the distribution of our deposit accounts at the dates indicated and the weighted average nominal interest rates on each
category of deposits presented.
2013
Percent
of Total
Deposits
Weighted
Average
Nominal
Rate
At December 31,
2012
Percent
of Total
Deposits
Weighted
Average
Nominal
Rate
(Dollars in thousands)
Amount
2011
Percent
of Total
Deposits
Weighted
Average
Nominal
Rate
Amount
8.20 %
43.83
6.10
1.01
59.14
$
0.19 %
0.50
-
0.08
0.40
288,398
1,136,599
155,789
32,560
1,613,346
9.56 %
37.70
5.17
1.08
53.51
$
0.19 %
0.57
-
0.09
0.44
349,630
919,029
118,507
29,786
1,416,952
11.11 %
29.21
3.77
0.95
45.04
0.32 %
0.67
-
0.21
0.52
Amount
$
265,003
1,416,774
197,343
32,798
1,911,918
Savings accounts
NOW accounts
Demand accounts
Mortgagors' escrow deposits
Total
Money market accounts (8)
199,907
6.18
0.21
148,618
4.93
0.15
200,183
6.36
0.33
Certificate of deposit accounts
with original maturities of:
Less than 6 Months (2)
6 to less than 12 Months (3)
12 to less than 30 Months (4)
30 to less than 48 Months (5)
48 to less than 72 Months (6)
72 Months or more (7)
Total certificate of deposit accounts
10,116
20,671
236,416
27,232
764,563
61,957
1,120,955
0.31
0.64
7.31
0.84
23.65
1.92
34.67
0.17
0.13
0.88
1.15
2.34
3.64
2.01
58,705
25,147
298,557
84,902
720,329
65,589
1,253,229
1.95
0.83
9.90
2.82
23.89
2.18
41.56
0.22
0.13
0.97
2.13
2.54
3.70
2.04
14,643
22,849
647,872
91,702
685,432
66,612
1,529,110
0.47
0.73
20.58
2.91
21.79
2.12
48.60
0.17
0.20
1.79
2.21
2.81
3.71
2.31
Total deposits (1)
$
3,232,780
100.00 %
0.95 %
$
3,015,193
100.00 %
1.09 %
$
3,146,245
100.00 %
1.38 %
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Included in the above balances are IRA and Keogh deposits totaling $117.4 million, $144.4 million and $168.8 million at December 31, 2013, 2012 and 2011, respectively.
Includes brokered deposits of $4.8 million, $53.0 million and $10.9 million at December 31, 2013, 2012 and 2011, respectively.
Includes brokered deposits of $0.8 million at December 31, 2013 and 2012.
Includes brokered deposits of $10.0 million, $20.9 million and $4.2 million at December 31, 2013, 2012 and 2011, respectively.
Includes brokered deposits of $105.4 million, $70.0 million and $188.5 million at December 31, 2013, 2012 and 2011, respectively.
Includes brokered deposits of $262.8 million, $314.6 million and $241.2 million at December 31, 2013, 2012 and 2011, respectively.
Includes brokered deposits of $63.1 million and $62.9 million at December 31, 2013 and 2012, respectively.
Includes brokered deposits of $70.5 million at December 31, 2013.
31
The following table presents by various rate categories, the amount of time deposit accounts outstanding at the
dates indicated, and the years to maturity of the certificate accounts outstanding at December 31, 2013.
2013
At December 31,
2012
2011
Within
One Year
(In thousands)
At December 31, 2013
One to
Three Years
Thereafter
Total
Interest rate:
1.99% or less
(1)
2.00% to 2.99% (2)
3.00% to 3.99% (3)
4.00% to 4.99%
5.00% to 5.99% (4)
Total
$
$
543,757
212,971
344,884
308
19,033
1,120,953
$
$
571,109
279,698
370,570
10,308
21,544
1,253,229
$
$
535,441
549,589
401,650
19,764
22,666
1,529,110
$
$
232,963
48,304
161,494
294
15,961
459,016
$
$
230,218
84,729
158,232
14
3,072
476,265
$
$
80,576
79,938
25,158
-
-
185,672
$
$
543,757
212,971
344,884
308
19,033
1,120,953
(1)
(2)
(3)
(4)
Includes brokered deposits of $204.4 million, $221.5.million and $104.0 million at December 31, 2013, 2012 and 2011, respectively.
Includes brokered deposits of $108.6 million, $152.1 million and $161.2 million at December 31, 2013, 2012 and 2011, respectively.
Includes brokered deposits of $133.9 million, $148.5 million and $177.8 million at December 31, 2013, 2012 and 2011, respectively.
Includes brokered deposits of $1.7 million at December 31, 2011.
The following table presents by remaining maturity categories the amount of certificate of deposit accounts with
balances of $100,000 or more at December 31, 2013 and their annualized weighted average interest rates.
Maturity Period:
Three months or less
Over three through six months
Over six through 12 months
Over 12 months
Total
Amount
Weighted
Average Rate
(Dollars in thousands)
$
$
50,099
13,035
83,706
188,516
335,356
0.98 %
1.92
2.05
2.22
1.98 %
The above table does not include brokered deposits issued in $1,000.00 amounts under a master certificate of
deposit totaling $437.7 million with a weighted average rate of 2.03%.
The following table presents the deposit activity, including mortgagors’ escrow deposits, for the periods
indicated.
For the year ended December 31,
2012
(In thousands)
$
(172,519)
1,085
40,382
(131,052)
$
2011
$
$
(93,983)
1,187
48,431
(44,365)
Net deposits (withdrawals)
Amortization of premiums, net
Interest on deposits
Net increase (decrease) in deposits
2013
$
$
184,470
1,080
32,037
217,587
32
The following table sets forth the distribution of our average deposit accounts for the years indicated, the
percentage of total deposit portfolio, and the average interest cost of each deposit category presented. Average balances
for all years shown are derived from daily balances.
2013
Percent
of Total
Deposits
Average
Cost
Average
Balance
At December 31,
2012
Percent
of Total
Deposits
(Dollars in thousands)
2011
Percent
of Total
Deposits
Average
Cost
Average
Cost
Average
Balance
8.73 %
41.04
5.37
1.47
56.61
5.72
$
0.19 %
0.52
-
0.08
0.41
0.16
317,095
1,025,116
134,166
41,973
1,518,350
175,817
10.11 %
32.67
4.28
1.34
48.40
5.60
$
0.22 %
0.61
-
0.09
0.46
0.23
369,206
838,648
107,278
39,430
1,354,562
278,692
37.67
100.00 %
2.06
1.02 %
$
1,443,195
3,137,362
46.00
100.00 %
2.29
1.29 %
$
1,552,020
3,185,274
11.59 %
26.33
3.37
1.24
42.53
8.75
-
48.72
100.00 %
0.57 %
0.79
-
0.12
0.65
0.47
2.47
1.52 %
Average
Balance
$
$
274,791
1,291,861
169,190
46,217
1,782,059
180,211
1,185,696
3,147,966
Savings accounts
NOW accounts
Demand accounts
Mortgagors' escrow deposits
Total
Money market accounts
Certificate of deposit accounts
Total deposits
Borrowings. Although deposits are our primary source of funds, we also use borrowings as an alternative and
cost effective source of funds for lending, investing and other general purposes. The Bank is a member of, and is eligible
to obtain advances from, the FHLB-NY. Such advances generally are secured by a blanket lien against the Bank’s
mortgage portfolio and the Bank’s investment in the stock of the FHLB-NY. In addition, the Bank may pledge
mortgage-backed securities to obtain advances from the FHLB-NY. See “— Regulation — Federal Home Loan Bank
System.” The maximum amount that the FHLB-NY will advance for purposes other than for meeting withdrawals
fluctuates from time to time in accordance with the policies of the FHLB-NY. The Bank may also enter into repurchase
agreements with broker-dealers and the FHLB-NY. These agreements are recorded as financing transactions and the
obligations to repurchase are reflected as a liability in our consolidated financial statements. In addition, we issued junior
subordinated debentures with a total par of $61.9 million in June and July 2007. These junior subordinated debentures
are carried at fair value in the Consolidated Statement of Financial Condition. The average cost of borrowings was
2.39%, 2.98% and 4.08% for the years ended December 31, 2013, 2012 and 2011, respectively. The average balances of
borrowings were $953.2 million, $767.6 million and $693.4 million for the same years, respectively.
33
The following table sets forth certain information regarding our borrowings at or for the periods ended on
the dates indicated.
2013
At or for the years ended December 31,
2012
(Dollars in thousands)
2011
Securities Sold with the Agreement to Repurchase
Average balance outstanding
Maximum amount outstanding at any month
end during the period
Balance outstanding at the end of period
Weighted average interest rate during the period
Weighted average interest rate at end of period
FHLB-NY Advances
Average balance outstanding
Maximum amount outstanding at any month
end during the period
Balance outstanding at the end of period
Weighted average interest rate during the period
Weighted average interest rate at end of period
Other Borrowings
Average balance outstanding
Maximum amount outstanding at any month
end during the period
Balance outstanding at the end of period
Weighted average interest rate during the period
Weighted average interest rate at end of period
Total Borrowings
Average balance outstanding
Maximum amount outstanding at any month
end during the period
Balance outstanding at the end of period
Weighted average interest rate during the period
Weighted average interest rate at end of period
Subsidiary Activities
$
172,944
$
185,300
$
171,092
185,300
155,300
3.42 %
3.41
185,300
185,300
3.62 %
3.47
185,300
185,300
4.07 %
3.77
$
754,305
$
557,147
$
491,017
864,864
827,252
2.03 %
1.48
739,183
739,183
2.33 %
1.72
562,576
473,528
3.45 %
2.67
$
25,939
$
25,191
$
31,299
29,570
29,570
6.17 %
5.67
26,386
23,922
12.65 %
6.92
36,177
26,311
13.82 %
16.96
$
953,188
$
767,638
$
693,408
1,067,170
1,012,122
2.39 %
1.90
948,405
948,405
2.98 %
2.21
777,373
685,139
4.08 %
3.51
At December 31, 2013, Flushing Financial Corporation had four wholly owned subsidiaries: the Bank and the
Trusts. In addition, the Bank had three wholly owned subsidiaries: FSB Properties, Inc. (“Properties”), Flushing
Preferred Funding Corporation (“FPFC”), and Flushing Service Corporation.
(a)Properties, which is incorporated in the State of New York, was formed in 1976 under the Savings Bank’s
New York State leeway investment authority. The original purpose of Properties was to engage in joint venture real
estate equity investments. The Savings Bank discontinued these activities in 1986. The last joint venture in which
Properties was a partner was dissolved in 1989. The last remaining property acquired by the dissolution of these joint
ventures was disposed of in 1998. Properties is currently used to hold title to real estate owned that is obtained via
foreclosure.
(b)FPFC, which is incorporated in the State of Delaware, was formed in 1997 as a real estate investment trust
for the purpose of acquiring, holding and managing real estate mortgage assets. FPFC also provides an additional vehicle
for access by the Company to the capital markets for future opportunities.
(c)Flushing Service Corporation, which is incorporated in the State of New York, was formed in 1998 to market
insurance products and mutual funds.
34
Personnel
At December 31, 2013, we had 362 full-time employees and 16 part-time employees. None of our employees
are represented by a collective bargaining unit, and we consider our relationship with our employees to be good. At the
present time, Flushing Financial Corporation only employs certain officers of the Bank. These employees do not receive
any extra compensation as officers of Flushing Financial Corporation.
Omnibus Incentive Plan
The 2005 Omnibus Incentive Plan (“Omnibus Plan”) became effective on May 17, 2005 after adoption by the
Board of Directors and approval by the stockholders. The Omnibus Plan authorizes the Compensation Committee to
grant a variety of equity compensation awards as well as long-term and annual cash incentive awards, all of which can be
structured so as to comply with Section 162(m) of the Internal Revenue Code. As of December 31, 2013, there are
374,658 shares available under the full value award plan and 56,920 shares under the non-full value plan. We have
applied the shares previously authorized by stockholders under the 1996 Stock Option Incentive Plan and the 1996
Restricted Stock Incentive Plan for use under the non-full value and full value plans, respectively, for future awards
under the Omnibus Plan. All grants and awards under the 1996 Stock Option Incentive Plan and 1996 Restricted Stock
Incentive Plan prior to the effective date of the Omnibus Plan remained outstanding as issued. In May 2011, the
Company’s stockholders approved an additional 625,000 shares for the full value pool. The exercise price per share of a
stock option grant may not be less than the fair market value of the common stock of the Company on the date of grant,
and may not be repriced without the approval of the Company’s stockholders. Options, stock appreciation rights,
restricted stock, restricted stock units and other stock based awards granted under the Omnibus Plan are generally subject
to a minimum vesting period of three years.
For additional information concerning this plan, see “Note 11 of Notes to Consolidated Financial Statements” in
Item 8 of this Annual Report.
FEDERAL, STATE AND LOCAL TAXATION
The following discussion of tax matters is intended only as a summary and does not purport to be a
comprehensive description of the tax rules applicable to the Company.
Federal Taxation
General. We report our income using a calendar year and the accrual method of accounting. We are subject to
the federal tax laws and regulations which apply to corporations generally, and, since the enactment of the Small
Business Job Protection Act of 1996 (the “Act”), those laws and regulations governing the Bank’s deductions for bad
debts, described below.
Bad Debt Reserves. Prior to the enactment of the Act, which was signed into law on August 20, 1996, savings
institutions which met certain definitional tests primarily relating to their assets and the nature of their business
(“qualifying thrifts”), such as the Savings Bank, were allowed deductions for bad debts under methods more favorable
than those granted to other taxpayers. Qualifying thrifts could compute deductions for bad debts using either the specific
charge off method of Section 166 of the Internal Revenue Code (the “Code”) or the reserve method of Section 593 of the
Code. Section 1616(a) of the Act repealed the Section 593 reserve method of accounting for bad debts by qualifying
thrifts, effective for taxable years beginning after 1995. Qualifying thrifts that are treated as large banks, such as the
Savings Bank, are required to use the specific charge off method, pursuant to which the amount of any debt may be
deducted only as it actually becomes wholly or partially worthless.
Distributions. To the extent that the Bank makes “non-dividend distributions” to stockholders that are
considered to result in distributions from its pre-1988 reserves or the supplemental reserve for losses on loans (“excess
distributions”), then an amount based on the amount distributed will be included in the Bank’s taxable income. Non-
dividend distributions include distributions in excess of the Bank’s current and post-1951 accumulated earnings and
profits, as calculated for federal income tax purposes, distributions in redemption of stock and distributions in partial or
complete liquidation. The amount of additional taxable income resulting from an excess distribution is an amount that
when reduced by the tax attributable to the income is equal to the amount of the excess distribution. Thus, slightly more
than one and one-half times the amount of the excess distribution made would be includable in gross income for federal
income tax purposes, assuming a 35% federal corporate income tax rate. See “Regulation (cid:127) Restrictions on Dividends
and Capital Distributions” for limits on the payment of dividends by the Bank. The Bank does not intend to pay
dividends or make non-dividend distributions described above that would result in a recapture of any portion of its pre-
1988 bad debt reserves.
35
Corporate Alternative Minimum Tax. The Code imposes an alternative minimum tax on corporations equal to
the excess, if any, of 20% of alternative minimum taxable income (“AMTI”) over a corporation’s regular federal income
tax liability. AMTI is equal to taxable income with certain adjustments. Generally, only 90% of AMTI can be offset by
net operating loss carrybacks and carryforwards.
State and Local Taxation
New York State and New York City Taxation. We are subject to the New York State Franchise Tax on Banking
Corporations in an annual amount equal to the greater of (1) 7.1% of “entire net income” allocable to New York State
during the taxable year or (2) the applicable alternative minimum tax. The alternative minimum tax is generally the
greater of (a) 0.01% of the value of assets allocable to New York State with certain modifications, (b) 3% of “alternative
entire net income” allocable to New York State or (c) $250. Entire net income is similar to federal taxable income,
subject to certain modifications, including that net operating losses arising during any taxable year prior to January 1,
2001 cannot be carried back or carried forward, and net operating losses arising during any taxable year beginning on or
after January 1, 2001 cannot be carried back. Alternative entire net income is equal to entire net income without certain
deductions that are allowable in the calculation of entire net income. We are also subject to a similarly calculated New
York City tax of 9% on income allocated to New York City. For New York City tax purposes, entire net income is
similar to federal taxable income, subject to certain modifications, including that net operating losses arising during any
taxable year prior to January 1, 2009 cannot be carried back or carried forward, and net operating losses arising during
any taxable year beginning on or after January 1, 2009 cannot be carried back and similar alternative taxes. In addition,
we are subject to a tax surcharge at a rate of 17% of the New York State Franchise Tax that is attributable to business
activity carried on within the Metropolitan Commuter Transportation District.
Notwithstanding the repeal of the federal income tax provisions permitting bad debt deductions under the
reserve method, New York State had enacted legislation maintaining the preferential treatment of additional loss reserves
for qualifying real property and non-qualifying loans of qualifying thrifts for both New York State and New York City
tax purposes. Calculation of the amount of additions to reserves for qualifying real property loans was limited to the
larger of the amount derived by the percentage of taxable income method or the experience method. For these purposes,
the applicable percentage to calculate the bad debt deduction under the percentage of taxable income method was 32% of
taxable income, reduced by additions to reserves for non-qualifying loans, except that the amount of the addition to the
reserve could not exceed the amount necessary to increase the balance of the reserve for losses on qualifying real
property loans at the close of the taxable year to 6% of the balance of the qualifying real property loans outstanding at
the end of the taxable year. Under the experience method, the maximum addition to a loan reserve generally equaled the
amount necessary to increase the balance of the bad debt reserve at the close of the taxable year to the greater of (1) the
amount that bears the same ratio to loans outstanding at the close of the taxable year as the total net bad debts sustained
during the current and five preceding taxable years bears to the sum of the loans outstanding at the close of those six
years, or (2) the balance of the bad debt reserve at the close of the “base year,” or, if the amount of loans outstanding has
declined since the base year, the amount which bears the same ratio to the amount of loans outstanding at the close of the
taxable year as the balance of the reserve at the close of the base year. For these purposes, the “base year” was the last
taxable year beginning before 1988. The amount of additions to reserves for non-qualifying loans was computed under
the experience method. In no event could the additions to reserves for qualifying real property loans be greater than the
larger of the amount determined under the experience method or the amount which, when added to the additions to
reserves for non-qualifying loans, equal the amount by which 12% of the total deposits or withdrawable accounts of
depositors of the Savings Bank at the close of the taxable year exceeded the sum of the Savings Bank’s surplus,
undivided profits and reserves at the beginning of such year.
In September 2010, the New York State legislature changed New York State and City tax law for thrifts, such
as the Savings Bank, by eliminating the percentage of taxable income method for determining bad debt deductions for
taxable years beginning on or after January 1, 2010. This change in the New York State and City tax law for thrifts did
not require the recapture of tax bad debt reserves previously established, and eliminated the requirement to recapture tax
bad debt reserves if a thrift failed to meet the definition of a thrift institution under New York State and City tax law.
The Savings Bank had historically reported in its New York State and City income tax returns a deduction for
bad debts based on the amount allowed under the percentage of taxable income method. This amount had historically
exceeded actual bad debts incurred by the Savings Bank. Since the Savings Bank has consistently stated its intention to
convert to a more “commercial like” bank, which would have previously required the Savings Bank to recapture this
excess bad debt reserve if it failed to meet the definition of a thrift under the New York State and City tax law, the
Savings Bank had, in prior periods, recorded the tax liability related to the possible recapture of the excess tax bad debt
reserve. As a result of the legislation passed by the New York State legislature, this tax liability will no longer be
36
required to be recaptured. As a result, the Savings Bank reversed approximately $5.5 million of net tax liabilities through
income during the year ended December 31, 2010.
Delaware State Taxation. As a Delaware holding company not earning income in Delaware, we are exempt
from Delaware corporate income tax but are required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
REGULATION
General
The Bank is a New York State-chartered commercial bank and its deposit accounts are insured under the
Deposit Insurance Fund (the “DIF”) of the Federal Deposit Insurance Corporation (the “FDIC”) up to applicable legal
limits. The Bank is subject to extensive regulation and supervision by the NYDFS, as its chartering agency, by the FDIC,
as its insurer of deposits, and by the Consumer Financial Protection Bureau (the “CFPB”), which was created under the
Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in 2011 to implement and
enforce consumer protection laws applying to banks. The Bank must file reports with the NYDFS, the FDIC, and the
CFPB concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other depository institutions. Furthermore, the Bank is
periodically examined by the NYDFS and the FDIC to assess compliance with various regulatory requirements,
including safety and soundness considerations. This regulation and supervision establishes a comprehensive framework
of activities in which a commercial bank can engage, and is intended primarily for the protection of the insurance fund
and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with its
supervisory and enforcement activities and examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss allowances for regulatory purposes. Any change in such regulation,
whether by the NYDFS, the FDIC, or through legislation, could have a material adverse impact on the Company, the
Bank and its operations, and the Company’s shareholders.
The Company is required to file certain reports under, and otherwise comply with, the rules and regulations of the
Federal Reserve Board of Governors (the “FRB”), the FDIC, the NYDFS, and the Securities and Exchange Commission
(the “SEC”) under federal securities laws. In addition, the FRB periodically examines the Company. Certain of the
regulatory requirements applicable to the Bank and the Company are referred to below or elsewhere herein. However,
such discussion is not meant to be a complete explanation of all laws and regulations and is qualified in its entirety by
reference to the actual laws and regulations.
The Dodd-Frank Act
The Dodd-Frank Act has significantly changed the current bank regulatory structure and will continue to affect, into the
immediate future, the lending and investment activities and general operations of depository institutions and its holding
companies. In addition to creating the CFPB, the Dodd-Frank Act requires the FRB to establish minimum consolidated
capital requirements for bank holding companies that are as stringent as those required for insured depository
institutions; the components of Tier 1 capital will be restricted to capital instruments that are currently considered to be
Tier 1 capital for insured depository institutions. In addition, the proceeds of trust preferred securities will be excluded
from Tier 1 capital unless (i) such securities are issued by bank holding companies with assets of less than $500 million,
or (ii) such securities were issued prior to May 19, 2010 by bank or savings and loan holding companies with assets of
less than $15 billion. The Dodd-Frank Act created a new supervisory structure for oversight of the U.S. financial system,
including the establishment of a new council of regulators, the Financial Stability Oversight Council, to monitor and
address systemic risks to the financial system. Non-bank financial companies that are deemed to be significant to the
stability of the U.S. financial system and all bank holding companies with $50 billion or more in total consolidated assets
will be subject to heightened supervision and regulation. The FRB will implement prudential requirements and prompt
corrective action procedures for such companies.
The Dodd-Frank Act made many additional changes in banking regulation, including: authorizing depository institutions,
for the first time, to pay interest on business checking accounts; requiring originators of securitized loans to retain a
percentage of the risk for transferred loans; establishing regulatory rate-setting for certain debit card interchange fees;
and establishing a number of reforms for mortgage lending and consumer protection.
The Dodd-Frank Act also broadened the base for FDIC insurance assessments. The FDIC was required to promulgate
rules revising its assessment system so that it is based not on deposits, but on the average consolidated total assets less
the tangible equity capital of an insured institution. That rule took effect April 1, 2011. The Dodd-Frank Act also
permanently increased the maximum amount of deposit insurance for banks, savings institutions, and credit unions to
37
$250,000 per depositor, retroactive to January 1, 2008, and provided non-interest-bearing transaction accounts with
unlimited deposit insurance through December 31, 2012.
Many of the provisions of the Dodd-Frank Act are not yet effective. The Dodd-Frank Act requires various federal
agencies to promulgate numerous and extensive implementing regulations over the next several years. Although it is
therefore difficult to predict at this time what impact the Dodd-Frank Act and the implementing regulations will have on
the Company and the Bank, they may have a material impact on operations through, among other things, heightened
regulatory supervision and increased compliance costs.
Basel III
In the summer of 2012, our primary federal regulators published two notices of proposed rulemaking (“NPRs”)
that would have substantially revised the risk-based capital requirements applicable to bank holding companies and
depository institutions, including the Company and the Bank, compared to the then current U.S. risk-based capital rules,
which are based on the international capital accords of the Basel Committee on Banking Supervision, which are
generally referred to as “Basel I.”
During July 2013, our primary federal regulators issued revised NPRs that will revise and replace the agencies' current
capital rules. The NPRs include numerous revisions to the existing capital regulations, including, but not limited to, the
following:
(cid:120)
Revises the definition of regulatory capital components and related calculations.
(cid:120) Adds a new common equity tier 1 capital ratio.
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Increases the minimum tier 1 capital ratio requirement from four percent to six percent.
Incorporates the revised regulatory capital requirements into the Prompt Corrective Action framework.
Implements a new capital conservation buffer that would limit payment of capital distributions and certain
discretionary bonus payments to executive officers and key risk takers if the banking organization does not hold
certain amounts of common equity tier 1 capital in addition to those needed to meet its minimum risk-based
capital requirements.
Provides a transition period for several aspects of the proposed rule: the new minimum capital ratio
requirements, the capital conservation buffer, and the regulatory capital adjustments and deductions.
Increases capital requirements for past-due loans, high volatility commercial real estate exposures, and certain
short-term loan commitments.
Removes references to credit ratings consistent with Section 939A of the Dodd-Frank Act.
Establishes due diligence requirements for securitization exposures.
The capital regulations would be effective January 1, 2015 for bank holding companies and banks with less than $15
billion in total assets, such as our Company and Bank. Based on our preliminary assessment of the NPRs, we believe we
will see an increase in our total risk-weighted assets. However, the Company and the Bank, based on our preliminary
assessment, would meet the requirements of the NPRs and will continue to be considered well-capitalized.
Volcker Rule
On December 10, 2013, our primary federal regulators adopted Section 619 of the Dodd-Frank Act, commonly
referred to as the “Volcker Rule,” which prohibits insured depository institutions from engaging in short-term proprietary
trading of certain securities, derivatives and other financial instruments for the firm’s own account, subject to certain
exemptions, including market making and risk-mitigating hedging. The Volcker Rule also imposes limits on banking
entities’ investments in, and other relationships with, hedge funds and private equity funds.
The rule as adopted prohibited banking entities from owning collateralized debt obligations backed primarily by
trust preferred securities (“TruPS CDOs”) after July 21, 2015. At December 31, 2013, the Company held TruPs CDOs
with an amortized cost and market value totaling $11.2 million and $8.0 million, respectively.
38
On January 14, 2014, our primary federal regulators approved an interim final rule to permit banking entities to
retain interests in certain TruPS CDOs from the investment prohibitions of Section 619 of the Dodd-Frank Act.
Under the interim final rule, the agencies permit the retention of an interest in or sponsorship of covered funds by
banking entities if the following qualifications are met:
(cid:120)
(cid:120)
(cid:120)
the TruPS CDO was established, and the interest was issued, before May 19, 2010;
the banking entity reasonably believes that the offering proceeds received by the TruPS CDO were invested
primarily in Qualifying TruPS Collateral; and
the banking entity's interest in the TruPS CDO was acquired on or before December 10, 2013.
The interim final rule defines Qualifying TruPS Collateral as any trust preferred security or subordinated debt
instrument that was:
(cid:120)
(cid:120)
issued prior to May 19, 2010, by a depository institution holding company that as of the end of any reporting
period within 12 months immediately preceding the issuance of such trust preferred security or subordinated
debt instrument had total consolidated assets of less than $15 billion; or
issued prior to May 19, 2010, by a mutual holding company.
As a result of the interim final rule, the Company believes that the TruPS CDOs it owns with an amortized cost
and market value of $9.3 million and $6.1 million, respectively, are not prohibited by the Volcker Rule. The Company
has not determined if the remaining TruPS CDO it holds, which is carried at fair value through earnings pursuant to the
fair value option, is prohibited by the Volcker Rule. This TruPS CDO had a amortized cost and market value of $1.9
million at December 31, 2013.
New York State Law
The Bank derives its lending, investment, and other authority primarily from the applicable provisions of New York
State Banking Law and the regulations of the NYDFS, as limited by FDIC regulations. Under these laws and regulations,
banks, including the Bank, may invest in real estate mortgages, consumer and commercial loans, certain types of debt
securities (including certain corporate debt securities, and obligations of federal, state, and local governments and
agencies), certain types of corporate equity securities, and certain other assets. The lending powers of New York State-
chartered commercial banks are not subject to percentage-of-assets or capital limitations, although there are limits
applicable to loans to individual borrowers.
The exercise by an FDIC-insured commercial bank of the lending and investment powers under New York State
Banking Law is limited by FDIC regulations and other federal laws and regulations. In particular, the applicable
provisions of New York State Banking Law and regulations governing the investment authority and activities of an
FDIC-insured state-chartered savings bank and commercial bank have been effectively limited by the Federal Deposit
Insurance Corporation Improvement Act of 1991 (“FDICIA”) and the FDIC regulations issued pursuant thereto.
With certain limited exceptions, a New York State-chartered commercial bank may not make loans or extend credit for
commercial, corporate, or business purposes (including lease financing) to a single borrower, the aggregate amount of
which would be in excess of 15% of the bank’s net worth or up to 25% for loans secured by collateral having an
ascertainable market value at least equal to the excess of such loans over the bank’s net worth. The Bank currently
complies with all applicable loans-to-one-borrower limitations. At December 31, 2013, the Bank’s largest aggregate
amount of loans to one borrower was $59.2 million, all of which were performing according to their terms. See “—
General — Lending Activities.”
Under New York State Banking Law, New York State-chartered stock-form commercial banks may declare and pay
dividends out of its net profits, unless there is an impairment of capital, but approval of the NYDFS Superintendent (the
“Superintendent”) is required if the total of all dividends declared by the bank in a calendar year would exceed the total
of its net profits for that year combined with its retained net profits for the preceding two years less prior dividends paid.
New York State Banking Law gives the Superintendent authority to issue an order to a New York State-chartered
banking institution to appear and explain an apparent violation of law, to discontinue unauthorized or unsafe practices,
and to keep prescribed books and accounts. Upon a finding by the NYDFS that any director, trustee, or officer of any
banking organization has violated any law, or has continued unauthorized or unsafe practices in conducting the business
of the banking organization after having been notified by the Superintendent to discontinue such practices, such director,
39
trustee, or officer may be removed from office after notice and an opportunity to be heard. The Superintendent also has
authority to appoint a conservator or a receiver for a savings or commercial bank under certain circumstances.
FDIC Regulations
Capital Requirements. The FDIC has adopted risk-based capital guidelines to which the Bank is subject. The guidelines
establish a systematic analytical framework that makes regulatory capital requirements sensitive to differences in risk
profiles among banking organizations. The Bank is required to maintain certain levels of regulatory capital in relation to
regulatory risk-weighted assets. The ratio of such regulatory capital to regulatory risk-weighted assets is referred to as a
“risk-based capital ratio.” Risk-based capital ratios are determined by allocating assets and specified off-balance-sheet
items to four risk-weighted categories ranging from 0% to 100%, with higher levels of capital being required for the
categories perceived as representing greater risk.
These guidelines divide an institution’s capital into two tiers. The first tier (“Tier 1”) includes common equity, retained
earnings, certain non-cumulative perpetual preferred stock (excluding auction rate issues), and minority interests in
equity accounts of consolidated subsidiaries, less goodwill and other intangible assets (except mortgage servicing rights
and purchased credit card relationships subject to certain limitations). Supplementary (“Tier 2”) capital includes, among
other items, cumulative perpetual and long-term limited-life preferred stock, mandatorily convertible securities, certain
hybrid capital instruments, term subordinated debt, and the allowance for loan losses, subject to certain limitations, and
up to 45% of pre-tax net unrealized gains on equity securities with readily determinable fair market values, less required
deductions. Commercial banks are required to maintain a total risk-based capital ratio of at least 8%, of which at least
4% must be Tier 1 capital.
In addition, the FDIC has established regulations prescribing a minimum Tier 1 leverage capital ratio (the ratio of Tier 1
capital to adjusted average assets as specified in the regulations). These regulations provide for a minimum Tier 1
leverage capital ratio of 3% for institutions that meet certain specified criteria, including that they have the highest
examination rating and are not experiencing or anticipating significant growth. All other institutions are required to
maintain a Tier 1 leverage capital ratio of at least 4%. The FDIC may, however, set higher leverage and risk-based
capital requirements on individual institutions when particular circumstances warrant. Institutions experiencing or
anticipating significant growth are expected to maintain capital ratios, including tangible capital positions, well above the
minimum levels.
As of December 31, 2013, the Bank was deemed to be well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, a bank must maintain a minimum Tier 1 leverage capital ratio of
5%, a minimum Tier 1 risk-based capital ratio of 6%, and a minimum total risk-based capital ratio of 10%. For a
summary of the regulatory capital ratios of the Bank at December 31, 2013, see “Note 14 of Notes to Consolidated
Financial Statements” in Item 8 of this Annual Report.
The regulatory capital regulations of the FDIC and other federal banking agencies provide that the agencies will take into
account the exposure of an institution’s capital and economic value to changes in interest rate risk in assessing capital
adequacy. According to such agencies, applicable considerations include the quality of the institution’s interest rate risk
management process, overall financial condition, and the level of other risks at the institution for which capital is needed.
Institutions with significant interest rate risk may be required to hold additional capital. The agencies have issued a joint
policy statement providing guidance on interest rate risk management, including a discussion of the critical factors
affecting the agencies’ evaluation of interest rate risk in connection with capital adequacy. Institutions that engage in
specified amounts of trading activity may be subject to adjustments in the calculation of the risk-based capital
requirement to assure sufficient additional capital to support market risk.
Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe, for the depository
institutions under its jurisdiction, standards that relate to, among other things, internal controls; information and audit
systems; loan documentation; credit underwriting; the monitoring of interest rate risk; asset growth; compensation; fees
and benefits; and such other operational and managerial standards as the agency deems appropriate. The federal banking
agencies adopted final regulations and Interagency Guidelines Establishing Standards for Safety and Soundness (the
“Guidelines”) to implement these safety and soundness standards. The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems at insured depository institutions before
capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any
standard prescribed by the Guidelines, the agency may require the institution to provide it with an acceptable plan to
achieve compliance with the standard, as required by the Federal Deposit Insurance Act, as amended, (the “FDI Act”).
The final regulations establish deadlines for the submission and review of such safety and soundness compliance plans.
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Real Estate Lending Standards. The FDIC and the other federal banking agencies have adopted regulations that
prescribe standards for extensions of credit that are (i) secured by real estate, or (ii) made for the purpose of financing
construction or improvements on real estate. The FDIC regulations require each institution to establish and maintain
written internal real estate lending standards that are consistent with safe and sound banking practices, and appropriate to
the size of the institution and the nature and scope of its real estate lending activities. The standards also must be
consistent with accompanying FDIC guidelines, which include loan-to-value limitations for the different types of real
estate loans. Institutions are also permitted to make a limited amount of loans that do not conform to the proposed loan-
to-value limitations so long as such exceptions are reviewed and justified appropriately. The FDIC guidelines also list a
number of lending situations in which exceptions to the loan-to-value standard are justified.
Dividend Limitations. The FDIC has authority to use its enforcement powers to prohibit a commercial bank from paying
dividends if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice. Federal law
prohibits the payment of dividends that will result in the institution failing to meet applicable capital requirements on a
pro forma basis. The Bank is also subject to dividend declaration restrictions imposed by New York State law as
previously discussed under “New York State Law.”
Investment Activities. Since the enactment of FDICIA, all state-chartered financial institutions, including commercial
banks and their subsidiaries, have generally been limited to such activities as principal and equity investments of the
type, and in the amount, authorized for national banks. State law, FDICIA, and FDIC regulations permit certain
exceptions to these limitations. In addition, the FDIC is authorized to permit institutions to engage in state-authorized
activities or investments not permitted for national banks (other than non-subsidiary equity investments) for institutions
that meet all applicable capital requirements if it is determined that such activities or investments do not pose a
significant risk to the insurance fund. The Gramm-Leach-Bliley Act of 1999 and FDIC regulations impose certain
quantitative and qualitative restrictions on such activities and on a bank’s dealings with a subsidiary that engages in
specified activities.
Prompt Corrective Regulatory Action. Federal law requires, among other things, that federal bank regulatory authorities
take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For such
purposes, the law establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized.
The FDIC has adopted regulations to implement prompt corrective action. Among other things, the regulations define the
relevant capital measures for the five capital categories. An institution is deemed to be “well capitalized” if it has a total
risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a leverage capital ratio of
5% or greater, and is not subject to a regulatory order, agreement, or directive to meet and maintain a specific capital
level for any capital measure. An institution is deemed to be “adequately capitalized” if it has a total risk-based capital
ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater, and generally a leverage capital ratio of 4% or
greater. An institution is deemed to be “undercapitalized” if it has a total risk-based capital ratio of less than 8%, a Tier 1
risk-based capital ratio of less than 4%, or generally a leverage capital ratio of less than 4%. An institution is deemed to
be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital
ratio of less than 3%, or a leverage capital ratio of less than 3%. An institution is deemed to be “critically
undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less
than 2%.
“Undercapitalized” institutions are subject to growth, capital distribution (including dividend), and other
limitations, and are required to submit a capital restoration plan. An institution’s compliance with such plan is required to
be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5% of the
bank’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately
capitalized. If an undercapitalized institution fails to submit an acceptable plan, it is treated as if it is “significantly
undercapitalized.” Significantly undercapitalized institutions are subject to one or more additional restrictions including,
but not limited to, an order by the FDIC to sell sufficient voting stock to become adequately capitalized; requirements to
reduce total assets, cease receipt of deposits from correspondent banks, or dismiss directors or officers; and restrictions
on interest rates paid on deposits, compensation of executive officers, and capital distributions by the parent holding
company.
Beginning 60 days after becoming “critically undercapitalized,” critically undercapitalized institutions also may not
make any payment of principal or interest on certain subordinated debt, or extend credit for a highly leveraged
transaction, or enter into any material transaction outside the ordinary course of business. In addition, subject to a narrow
exception, the appointment of a receiver is required for a critically undercapitalized institution within 270 days after it
obtains such status.
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Insurance of Deposit Accounts. The deposits of the Bank are insured up to applicable limits by the DIF. Under the
FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk categories based upon
supervisory evaluations, regulatory capital level, and certain other factors, with less risky institutions paying lower
assessments. An institution’s assessment rate depends upon the category to which it is assigned and certain other factors.
Historically, assessment rates ranged from seven to 77.5 basis points of each institution’s deposit assessment base. On
February 7, 2011, as required by the Dodd-Frank Act, the FDIC published a final rule to revise the deposit insurance
assessment system. The rule, which took effect April 1, 2011, changed the assessment base used for calculating deposit
insurance assessments from deposits to total assets less tangible (Tier 1) capital. Since the new base is larger than the
previous base, the FDIC also lowered assessment rates so that the rule would not significantly alter the total amount of
revenue collected from the industry. On September 30, 2009, the FDIC collected, from all insured institutions, a special
emergency assessment of five basis points of total assets minus Tier 1 capital (capped at ten basis points of an
institution’s deposit assessment base as of June 30, 2009), in order to cover losses to the DIF. The FDIC considered the
need for similar special assessments during the final two quarters of 2009. However, in lieu of further special
assessments, the FDIC required insured institutions to prepay estimated quarterly risk-based assessments for the fourth
quarter of 2009 through the fourth quarter of 2012. The Bank prepaid a total of $16.9 million in risk-based assessments.
Due to the decline in economic conditions, the deposit insurance provided by the FDIC per account owner was raised to
$250,000 for all types of accounts. That change, initially intended to be temporary, was made permanent by the Dodd-
Frank Act. In addition, the FDIC adopted an optional Temporary Liquidity Guarantee Program (“TLGP”) under which,
for a fee, non-interest-bearing transaction accounts would receive unlimited insurance coverage until December 31, 2009
(later extended to December 31, 2010), and certain senior unsecured debt issued by institutions and their holding
companies between October 13, 2008 and June 30, 2009 (later extended to October 31, 2009) would be guaranteed by
the FDIC through June 30, 2012 or, in certain cases, until December 31, 2012. The Dodd-Frank Act provided for
continued unlimited coverage for certain non-interest-bearing transaction accounts until December 31, 2012.
The Dodd-Frank Act increased the minimum target DIF ratio from 1.15% of estimated insured deposits to 1.35% of
estimated insured deposits. The FDIC must seek to achieve the 1.35% ratio by September 30, 2020. Insured institutions
with assets of $10 billion or more are supposed to fund the increase. The Dodd-Frank Act eliminated the 1.5% maximum
fund ratio, leaving it, instead, to the discretion of the FDIC. The FDIC has exercised that discretion by establishing a
long range fund ratio of 2%, which could result in our paying higher deposit insurance premiums in the future.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or
unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order, or condition imposed by the FDIC. Management does not know of any practice, condition, or
violation that would lead to termination of the deposit insurance of the Bank.
On September 30, 1996, as part of an omnibus appropriations bill, the Deposit Insurance Funds Act of 1996 (the “Funds
Act”) was enacted. The Funds Act required Bank Insurance Fund (“BIF”) institutions, including the Savings Bank,
beginning January 1, 1997, to pay a portion of the interest due on the Finance Corporation (“FICO”) bonds issued in
connection with the savings and loan association crisis in the late 1980s, and required BIF institutions to pay their full
pro rata share of the FICO payments starting the earlier of January 1, 2000 or the date at which no savings institution
continues to exist. We were required, as of January 1, 2000, to pay our full pro rata share of the FICO payments. The
FICO assessment rate is subject to change. The Bank paid $269,000, $299,000 and $311,000 for their share of the
interest due on FICO bonds in 2013, 2012 and 2011, respectively, which was included in FDIC insurance expense.
Brokered Deposits. The FDIC has promulgated regulations implementing the FDICIA limitations on brokered deposits.
Under the regulations, well-capitalized institutions are not subject to brokered deposit limitations, while adequately
capitalized institutions are able to accept, renew or roll over brokered deposits only with a waiver from the FDIC and
subject to restrictions on the interest rate that can be paid on such deposits. Undercapitalized institutions are not
permitted to accept brokered deposits and may not solicit deposits by offering an effective yield that exceeds by more
than 75 basis points the prevailing effective yields on insured deposits of comparable maturity in the institution’s normal
market area or in the market area in which such deposits are being solicited. Pursuant to the regulation, the Bank, as a
well-capitalized institution, may accept brokered deposits. At December 31, 2013, the Bank had $517.4 million in
brokered deposit accounts.
Transactions with Affiliates
Under current federal law, transactions between depository institutions and their affiliates are governed by Sections 23A
and 23B of the Federal Reserve Act and the FRB’s Regulation W promulgated thereunder. An affiliate of a commercial
bank is any company or entity that controls, is controlled by, or is under common control with, the institution, other than
a subsidiary. Generally, an institution’s subsidiaries are not treated as affiliates unless they are engaged in activities as
42
principal that are not permissible for national banks. In a holding company context, at a minimum, the parent holding
company of an institution, and any companies that are controlled by such parent holding company, are affiliates of the
institution. Generally, Section 23A limits the extent to which the institution or its subsidiaries may engage in “covered
transactions” with any one affiliate to an amount equal to 10% of the institution’s capital stock and surplus, and contains
an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus.
The term “covered transaction” includes the making of loans or other extensions of credit to an affiliate; the purchase of
assets from an affiliate; the purchase of, or an investment in, the securities of an affiliate; the acceptance of securities of
an affiliate as collateral for a loan or extension of credit to any person; or issuance of a guarantee, acceptance, or letter of
credit on behalf of an affiliate. Section 23A also establishes specific collateral requirements for loans or extensions of
credit to, or guarantees or acceptances on letters of credit issued on behalf of, an affiliate. Section 23B requires that
covered transactions and a broad list of other specified transactions be on terms substantially the same as, or at least as
favorable to, the institution or its subsidiary as similar transactions with non-affiliates.
The Sarbanes-Oxley Act of 2002 generally prohibits loans by the Company to its executive officers and directors.
However, the Sarbanes-Oxley Act contains a specific exemption for loans by an institution to its executive officers and
directors in compliance with federal banking laws. Section 22(h) of the Federal Reserve Act, and FRB Regulation O
adopted thereunder, governs loans by a savings bank or commercial bank to directors, executive officers, and principal
shareholders. Under Section 22(h), loans to directors, executive officers, and shareholders who control, directly or
indirectly, 10% or more of voting securities of an institution, and certain related interests of any of the foregoing, may
not exceed, together with all other outstanding loans to such persons and affiliated entities, the institution’s total capital
and surplus. Section 22(h) also prohibits loans above amounts prescribed by the appropriate federal banking agency to
directors, executive officers, and shareholders who control 10% or more of the voting securities of an institution, and its
respective related interests, unless such loan is approved in advance by a majority of the board of the institution’s
directors. Any “interested” director may not participate in the voting. The loan amount (which includes all other
outstanding loans to such person) as to which such prior board of director approval is required, is the greater of $25,000
or 5% of capital and surplus or any loans aggregating over $500,000. Further, pursuant to Section 22(h), loans to
directors, executive officers, and principal shareholders must be made on terms substantially the same as those offered in
comparable transactions to other persons. There is an exception for loans made pursuant to a benefit or compensation
program that is widely available to all employees of the institution and does not give preference to executive officers
over other employees. Section 22(g) of the Federal Reserve Act places additional limitations on loans to executive
officers.
Community Reinvestment Act
Federal Regulation. Under the Community Reinvestment Act (“CRA”), as implemented by FDIC regulations, an
institution has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit
needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific
lending requirements or programs for financial institutions, nor does it limit an institution’s discretion to develop the
types of products and services that it believes are best suited to its particular community, consistent with the CRA. The
CRA requires the FDIC, in connection with its examinations, to assess the institution’s record of meeting the credit
needs of its community and to take such record into account in its evaluation of certain applications by such institution.
The CRA requires public disclosure of an institution’s CRA rating and further requires the FDIC to provide a written
evaluation of an institution’s CRA performance utilizing a four-tiered descriptive rating system. The Bank received a
CRA rating of “Satisfactory” in its most recent completed CRA examination, which was completed as of April 30, 2012.
Institutions that receive less than a satisfactory rating may face difficulties in securing approval for new activities or
acquisitions. The CRA requires all institutions to make public disclosures of their CRA ratings. As a special purpose
commercial bank, the Commercial Bank was not required to comply with the CRA prior to the Merger. Since the
Merger, the Bank is required to comply with CRA.
New York State Regulation. The Bank is also subject to provisions of the New York State Banking Law that impose
continuing and affirmative obligations upon a banking institution organized in New York State to serve the credit needs
of its local community (the “NYCRA”). Such obligations are substantially similar to those imposed by the CRA. The
NYCRA requires the NYDFS to make a periodic written assessment of an institution’s compliance with the NYCRA,
utilizing a four-tiered rating system, and to make such assessment available to the public. The NYCRA also requires the
Superintendent to consider the NYCRA rating when reviewing an application to engage in certain transactions, including
mergers, asset purchases, and the establishment of branch offices or ATMs, and provides that such assessment may serve
as a basis for the denial of any such application.
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Federal Reserve System
Under FRB regulations, the Bank is required to maintain reserves against its transaction accounts. The FRB regulations
generally require that reserves be maintained against aggregate transaction accounts as follows: for that portion of
transaction accounts aggregating $79.5 million or less (subject to adjustment by the FRB), the reserve requirement is 3%;
for amounts greater than $79.5 million, the reserve requirement is 10% (subject to adjustment by the FRB between 8%
and 14%). The first $12.4 million of otherwise reservable balances (subject to adjustments by the FRB) are exempted
from the reserve requirements. The Bank is in compliance with the foregoing requirements.
Federal Home Loan Bank System
The Bank is a member of the FHLB-NY, one of 12 regional FHLBs comprising the FHLB system. Each regional FHLB
manages its customer relationships, while the 12 FHLBs use its combined size and strength to obtain its necessary
funding at the lowest possible cost. As a member of the FHLB-NY, the Bank is required to acquire and hold shares of
FHLB-NY capital stock. Pursuant to this requirement, at December 31, 2013, the Bank was required to maintain $46.0
million of FHLB-NY stock.
Holding Company Regulation
Subsequent to the Merger, the Company is subject to examination, regulation, and periodic reporting under the Bank
Holding Company Act of 1956, as amended (the “BHCA”), as administered by the FRB. The Company is required to
obtain the prior approval of the FRB to acquire all, or substantially all, of the assets of any bank or bank holding
company. Prior FRB approval would be required for the Company to acquire direct or indirect ownership or control of
any voting securities of any bank or bank holding company if, after giving effect to such acquisition, it would, directly or
indirectly, own or control more than 5% of any class of voting shares of such bank or bank holding company. In addition
before any bank acquisition can be completed, prior approval thereof may also be required to be obtained from other
agencies having supervisory jurisdiction over the bank to be acquired, including the NYDFS.
FRB regulations generally prohibit a bank holding company from engaging in, or acquiring, direct or indirect control of
more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions
to this prohibition is for activities found by the FRB to be so closely related to banking or managing or controlling Bank
as to be a proper incident thereto. Some of the principal activities that the FRB has determined by regulation to be so
closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services;
(iii) providing discount brokerage services; (iv) acting as fiduciary, investment, or financial advisor; (v) leasing personal
or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare;
and (vii) acquiring a savings and loan association.
The FRB has adopted capital adequacy guidelines for bank holding companies (on a consolidated basis). At December
31, 2013, the Company’s consolidated Total and Tier 1 capital exceeded these requirements. The Dodd-Frank Act
required the FRB to issue consolidated regulatory capital requirements for bank holding companies that are at least as
stringent as those applicable to insured depository institutions. Such regulations eliminated the use of certain
instruments, such as cumulative preferred stock and trust preferred securities, as Tier 1 holding company capital.
Bank holding companies are generally required to give the FRB prior written notice of any purchase or redemption of its
outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding twelve months, is equal to 10% or more of
the Company’s consolidated net worth. The FRB may disapprove such a purchase or redemption if it determines that the
proposal would constitute an unsafe or unsound practice, or would violate any law, regulation, FRB order or directive, or
any condition imposed by, or written agreement with, the FRB. The FRB has adopted an exception to this approval
requirement for well-capitalized bank holding companies that meet certain other conditions.
The FRB has issued a policy statement regarding the payment of dividends by bank holding companies. In general, the
FRB’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of
earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality,
and overall financial condition. The FRB’s policies also require that a bank holding company serve as a source of
financial strength to its subsidiary banks by standing ready to use available resources to provide adequate capital funds to
those banks during periods of financial stress or adversity, and by maintaining the financial flexibility and capital-raising
capacity to obtain additional resources for assisting its subsidiary banks where necessary. The Dodd-Frank Act codifies
the source of financial strength policy and requires regulations to facilitate its application. Under the prompt corrective
action laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes
undercapitalized. These regulatory policies could affect the ability of the Company to pay dividends or otherwise engage
in capital distributions.
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Under the FDI Act, a depository institution may be liable to the FDIC for losses caused the DIF if a commonly
controlled depository institution were to fail. The Bank is commonly controlled within the meaning of that law.
The status of the Company as a registered bank holding company under the BHCA does not exempt it from certain
federal and state laws and regulations applicable to corporations generally, including, without limitation, certain
provisions of the federal securities laws.
The Company, the Bank, and their respective affiliates will be affected by the monetary and fiscal policies of
various agencies of the United States Government, including the Federal Reserve System. In view of changing
conditions in the national economy and in the money markets, it is difficult for management to accurately predict future
changes in monetary policy or the effect of such changes on the business or financial condition of the Company or the
Bank.
Acquisition of the Holding Company
Under the Federal Change in Bank Control Act (“CIBCA”), a notice must be submitted to the FRB if any person
(including a company), or group acting in concert, seeks to acquire 10% or more of the Company’s shares of outstanding
common stock, unless the FRB has found that the acquisition will not result in a change in control of the Company.
Under the CIBCA, the FRB generally has 60 days within which to act on such notices, taking into consideration certain
factors, including the financial and managerial resources of the acquirer; the convenience and needs of the communities
served by the Company and the Bank; and the anti-trust effects of the acquisition. Under the BHCA, any company would
be required to obtain approval from the FRB before it may obtain “control” of the Company within the meaning of the
BHCA. Control generally is defined to mean the ownership or power to vote 25% or more of any class of voting
securities of the Company or the ability to control in any manner the election of a majority of the Company’s directors.
An existing bank holding company would, under the BHCA, be required to obtain the FRB’s approval before acquiring
more than 5% of the Company’s voting stock. In addition to the CIBCA and the BHCA, New York State Banking Law
generally requires prior approval of the New York State Banking Board before any action is taken that causes any
company to acquire direct or indirect control of a banking institution that is organized in New York.
Federal Securities Law
The Company’s common stock and (associated preferred stock purchase rights) listed on the cover page of this report
are registered with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The
Company is subject to the information and reporting requirements, regulations governing proxy solicitations, insider
trading restrictions, and other requirements under the Exchange Act.
Consumer Financial Protection Bureau
Created under the Dodd-Frank Act, and given extensive implementation and enforcement powers, the CFPB has broad
rulemaking authority for a wide range of consumer financial laws that apply to all banks, including, among other things,
the authority to prohibit “unfair, deceptive, or abusive” acts and practices. Abusive acts or practices are defined as those
that (1) materially interfere with a consumer’s ability to understand a term or condition of a consumer financial product
or service, or (2) take unreasonable advantage of a consumer’s (a) lack of financial savvy, (b) inability to protect himself
in the selection or use of consumer financial products or services, or (c) reasonable reliance on a covered entity to act in
the consumer’s interests. The CFPB has the authority to investigate possible violations of federal consumer financial
law, hold hearings and commence civil litigation. The CFPB can issue cease-and-desist orders against banks and other
entities that violate consumer financial laws. The CFPB may also institute a civil action against an entity in violation of
federal consumer financial law in order to impose a civil penalty or an injunction.
Mortgage Banking and Related Consumer Protection Regulations
The retail activities of the Bank, including lending and the acceptance of deposits, are subject to a variety of statutes and
regulations designed to protect consumers. Interest and other charges collected or contracted for by the Bank are subject
to state usury laws and federal laws concerning interest rates. Loan operations are also subject to federal laws applicable
to credit transactions, such as:
• The federal Truth-In-Lending Act and Regulation Z issued by the FRB, governing disclosures of credit terms
to consumer borrowers;
• The Home Mortgage Disclosure Act and Regulation C issued by the FRB, requiring financial institutions to
provide information to enable the public and public officials to determine whether a financial institution is
fulfilling its obligation to help meet the housing needs of the community it serves;
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• The Equal Credit Opportunity Act and Regulation B issued by the FRB, prohibiting discrimination on the basis
of race, creed or other prohibited factors in extending credit;
• The Fair Credit Reporting Act and Regulation V issued by the FRB, governing the use and provision of
information to consumer reporting agencies;
• The Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection
agencies; and
• The guidance of the various federal agencies charged with the responsibility of implementing such federal
laws.
Deposit operations also are subject to:
• The Truth in Savings Act and Regulation DD issued by the FRB, which requires disclosure of deposit terms to
consumers;
• Regulation CC issued by the FRB, which relates to the availability of deposit funds to consumers;
• The Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial
records and prescribes procedures for complying with administrative subpoenas of financial records; and
• The Electronic Funds Transfer Act and Regulation E issued by the FRB, which governs automatic deposits to
and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated
teller machines and other electronic banking services.
In addition, the Bank and its subsidiaries may also be subject to certain state laws and regulations designed to
protect consumers.
Many of the foregoing laws and regulations are subject to change resulting from the provisions in the Dodd-Frank Act,
which in many cases calls for revisions to implementing regulations. In addition, oversight responsibilities of these and
other consumer protection laws and regulations will, in large measure, transfer from the Bank’s primary regulators to the
CFPB. We cannot predict the effect that being regulated by a new, additional regulatory authority focused on consumer
financial protection, or any new implementing regulations or revisions to existing regulations that may result from the
establishment of this new authority, will have on our businesses.
Available Information
We are a reporting company and file annual, quarterly and current reports, proxy statements and other
information with the SEC. We make available free of charge on or through our web site at www.flushingbank.com our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our SEC filings are also
available to the public free of charge over the Internet at the SEC’s web site at http://www.sec.gov.
You may also read and copy any document we file at the SEC’s public reference room located at 100 F. Street,
N.E., Room 1580, Washington, D.C. 20549. You may obtain information about the operation of the public reference
room by calling the SEC at 1-800-SEC-0330. You may request copies of these documents by writing to the SEC and
paying a fee for the copying cost.
Item 1A. Risk Factors.
In addition to the other information contained in this Annual Report, the following factors and other
considerations should be considered carefully in evaluating us and our business.
Changes in Interest Rates May Significantly Impact Our Financial Condition and Results of Operations
Like most financial institutions, our results of operations depend to a large degree on our net interest income.
When interest-bearing liabilities mature or reprice more quickly than interest-earning assets, a significant increase in
market interest rates could adversely affect net interest income. Conversely, a significant decrease in market interest rates
could result in increased net interest income. As a general matter, we seek to manage our business to limit our overall
exposure to interest rate fluctuations. However, fluctuations in market interest rates are neither predictable nor
controllable and may have a material adverse impact on our operations and financial condition. Additionally, in a rising
interest rate environment, a borrower’s ability to repay adjustable rate mortgages can be negatively affected as payments
increase at repricing dates.
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Prevailing interest rates also affect the extent to which borrowers repay and refinance loans. In a declining
interest rate environment, the number of loan prepayments and loan refinancing may increase, as well as prepayments of
mortgage-backed securities. Call provisions associated with our investment in U.S. government agency and corporate
securities may also adversely affect yield in a declining interest rate environment. Such prepayments and calls may
adversely affect the yield of our loan portfolio and mortgage-backed and other securities as we reinvest the prepaid funds
in a lower interest rate environment. However, we typically receive additional loan fees when existing loans are
refinanced, which partially offset the reduced yield on our loan portfolio resulting from prepayments. In periods of low
interest rates, our level of core deposits also may decline if depositors seek higher-yielding instruments or other
investments not offered by us, which in turn may increase our cost of funds and decrease our net interest margin to the
extent alternative funding sources are utilized. An increasing interest rate environment would tend to extend the average
lives of lower yielding fixed rate mortgages and mortgage-backed securities, which could adversely affect net interest
income. In addition, depositors tend to open longer term, higher costing certificate of deposit accounts which could
adversely affect our net interest income if rates were to subsequently decline. Additionally, adjustable rate mortgage
loans and mortgage-backed securities generally contain interim and lifetime caps that limit the amount the interest rate
can increase or decrease at repricing dates. Significant increases in prevailing interest rates may significantly affect
demand for loans and the value of bank collateral. See “— Local Economic Conditions.”
Our Lending Activities Involve Risks that May Be Exacerbated Depending on the Mix of Loan Types
At December 31, 2013, our gross loan portfolio was $3,423.0 million, of which 88% was mortgage loans
secured by real estate. The majority of these real estate loans were secured by multi-family residential property ($1,712.0
million), commercial real estate ($512.6 million) and one-to-four family mixed-use property ($595.8 million), which
combined represent 82% of our loan portfolio. Our loan portfolio is concentrated in the New York City metropolitan
area. Multi-family residential, one-to-four family mixed-use property, commercial real estate mortgage loans, and
construction loans, are generally viewed as exposing the lender to a greater risk of loss than fully underwritten one-to-
four family residential mortgage loans and typically involve higher principal amounts per loan. Multi-family residential,
one-to-four family mixed-use property and commercial real estate mortgage loans are typically dependent upon the
successful operation of the related property, which is usually owned by a legal entity with the property being the entity’s
only asset. If the cash flow from the property is reduced, the borrower’s ability to repay the loan may be impaired. If the
borrower defaults, our only remedy may be to foreclose on the property, for which the market value may be less than the
balance due on the related mortgage loan. We attempt to mitigate this risk by generally requiring a loan-to-value ratio of
no more than 75% at a time the loan is originated, except for one-to-four family residential mortgage loans, where we
require a loan-to value ratio of no more than 80%. Repayment of construction loans is contingent upon the successful
completion and operation of the project. The repayment of commercial business loans (the increased origination of
which is part of management’s strategy), is contingent on the successful operation of the related business. Changes in
local economic conditions and government regulations, which are outside the control of the borrower or lender, also
could affect the value of the security for the loan or the future cash flow of the affected properties. We continually
review the composition of our mortgage loan portfolio to manage the risk in the portfolio.
In addition, prior to 2010, we have originated one-to-four family residential mortgage loans without verifying
the borrower’s level of income. These loans involve a higher degree of risk as compared to our other fully underwritten
one-to-four family residential mortgage loans. These risks are mitigated by our policy to generally limit the amount of
one-to-four family residential mortgage loans to 80% of the appraised value or sale price, whichever is less, as well as
charging a higher interest rate than when the borrower’s income is verified. At December 31, 2013, we had $15.8
million outstanding of one-to-four family residential properties originated to individuals based on stated income and
verifiable assets, and $49.9 million advanced on home equity lines of credit for which we did not verify the borrowers
income. The total loans for which we did not verify the borrower’s income at December 31, 2013 was $65.7 million, or
2.0% of gross loans. These types of loans are generally referred to as “Alt A” loans since the borrower’s income was not
verified. These loans are not as readily saleable in the secondary market as our other fully underwritten loans, either as
whole loans or when pooled or securitized. We no longer originate one-to-four family residential mortgage loans or
home equity lines of credit to individuals without verifying their income. We have not originated, nor do we hold in
portfolio, any subprime loans.
Even in stable economic times, higher default rates may be expected for Alt A and similar loans. Although we
attempted to incorporate the higher default rates associated with these loans into our pricing models, there can be no
assurance that the premiums earned and the associated investment income will prove adequate to compensate for future
losses from these loans. Worsening economic conditions, rising unemployment rates and/or other regional real estate
price declines could even more significantly increase the default risks associated with these loans. In addition, these
same negative economic and market conditions could also significantly increase the default risk on loans for which we
did not assume higher default and claim rates.
47
In assessing our future earnings prospects, investors should consider, among other things, our level of
origination of one-to-four family residential, multi-family residential, commercial real estate and one-to-four family
mixed-use property mortgage loans, and commercial business and construction loans, and the greater risks associated
with such loans. See “Business — Lending Activities” in Item 1 of this Annual Report.
Failure to Effectively Manage Our Liquidity Could Significantly Impact Our Financial Condition and
Results of Operations
Our liquidity is critical to our ability to operate our business. Our primary sources of liquidity are deposits,
both retail deposits from our branch network including our internet branch and brokered deposits, and borrowed
funds, primarily wholesale borrowing from the FHLB-NY and repurchase agreements from both the FHLB-NY and
commercial banks. Funds are also provided by the repayment and sale of securities and loans. Our ability to obtain
funds are influenced by many external factors, including but not limited to, local and national economic conditions,
the direction of interest rates and competition for deposits in the markets we serve. Additionally, changes in the
FHLB-NY underwriting guidelines may limit or restrict our ability to borrow. A decline in available funding caused
by any of the above factors or could adversely impact our ability to originate loans, invest in securities, meet our
expenses, or fulfill our obligations such as repaying our borrowings or meeting deposit withdrawal demands.
Our Ability to Obtain Brokered Certificates of Deposit and Brokered Money Market Accounts as an
Additional Funding Source Could be Limited
We utilize brokered deposits as an additional funding source and to assist in the management of our interest rate
risk. The Bank had $517.4 million, or 16.0% of total deposits, and $522.1 million, or 17.3% of total deposits, in brokered
deposit accounts at December 31, 2013 and 2012, respectively. We have obtained brokered certificates of deposit when
the interest rate on these deposits is below the prevailing interest rate for non-brokered certificates of deposit with similar
maturities in our market, or when obtaining them allowed us to extend the maturities of our deposits at favorable rates
compared to borrowing funds with similar maturities, when we are seeking to extend the maturities of our funding to
assist in the management of our interest rate risk. Brokered certificates of deposit provide a large deposit for us at a lower
operating cost as compared to non-brokered certificates of deposit since we only have one account to maintain versus
several accounts with multiple interest and maturity checks. Unlike non-brokered certificates of deposit where the
deposit amount can be withdrawn with a penalty for any reason, including increasing interest rates, a brokered certificate
of deposit can only be withdrawn in the event of the death or court declared mental incompetence of the depositor. This
allows us to better manage the maturity of our deposits and our interest rate risk. We also utilize brokers to obtain money
market account deposits. The rate we pay on brokered money market accounts is the same or below the rate we pay on
non-brokered money market accounts, and the rate is agreed to in a contract between the Bank and the broker. These
accounts are similar to brokered certificates of deposit accounts in that we only maintain one account for the total deposit
per broker, with the broker maintaining the detailed records of each depositor. The Bank had $70.5 million in brokered
money market accounts at December 31, 2013. The Bank did not hold any brokered money market accounts at
December 31, 2012.
The FDIC has promulgated regulations implementing limitations on brokered deposits. Under the regulations,
well-capitalized institutions, such as the Bank, are not subject to brokered deposit limitations, while adequately
capitalized institutions are able to accept, renew or roll over brokered deposits only with a waiver from the FDIC and
subject to restrictions on the interest rate that can be paid on such deposits. Undercapitalized institutions are not
permitted to accept brokered deposits. Pursuant to the regulation, the Bank, as a well-capitalized institution, may accept
brokered deposits. Should our capital ratios decline, this could limit our ability to replace brokered deposits when they
mature.
The maturity of brokered certificates of deposit could result in a significant funding source maturing at one
time. Should this occur, it might be difficult to replace the maturing certificates with new brokered certificates of deposit.
We have used brokers to obtain these deposits which results in depositors with whom we have no other relationships
since these depositors are outside of our market, and there may not be a sufficient source of new brokered certificates of
deposit at the time of maturity. In addition, upon maturity, brokers could require us to offer some of the highest interest
rates in the country to retain these deposits, which would negatively impact our earnings. The Bank mitigates this risk by
obtaining brokered certificates of deposit with various maturities ranging up to six years, and attempts to avoid having a
significant amount maturing in any one year.
48
The Markets in Which We Operate Are Highly Competitive
We face intense and increasing competition both in making loans and in attracting deposits. Our market area has
a high density of financial institutions, many of which have greater financial resources, name recognition and market
presence than us, and all of which are our competitors to varying degrees. Particularly intense competition exists for
deposits and in all of the lending activities we emphasize. Our competition for loans comes principally from commercial
banks, savings banks, savings and loan associations, mortgage banking companies, insurance companies, finance
companies and credit unions. Management anticipates that competition for mortgage loans will continue to increase in
the future. Our most direct competition for deposits historically has come from savings banks, commercial banks,
savings and loan associations and credit unions. In addition, we face competition for deposits from products offered by
brokerage firms, insurance companies and other financial intermediaries, such as money market and other mutual funds
and annuities. Consolidation in the banking industry and the lifting of interstate banking and branching restrictions have
made it more difficult for smaller, community-oriented banks, such as us, to compete effectively with large, national,
regional and super-regional banking institutions. We launched an internet branch, “iGObanking.com®” a division of the
Bank, to provide us with access to consumers in markets outside our geographic locations. The internet banking arena
also has many larger financial institutions which have greater financial resources, name recognition and market presence
than we do.
Notwithstanding the intense competition, we have been successful in increasing our loan portfolios and deposit
base. However, no assurances can be given that we will be able to continue to increase our loan portfolios and deposit
base, as contemplated by management’s current business strategy.
Our Results of Operations May Be Adversely Affected by Changes in National and/or Local Economic
Conditions
Our operating results are affected by national and local economic and competitive conditions, including changes
in market interest rates, the strength of the local economy, government policies and actions of regulatory authorities.
The national and our local economies were generally considered to be in a recession from December 2007 through the
middle of 2009. This resulted in increased unemployment and declining property values, although the property value
declines in the New York City metropolitan area have not been as great as many other areas of the country. While the
national and local economies showed signs of improvement since the second half of 2009, unemployment has remained
at elevated levels. The housing market in the United States continued to see a significant slowdown during 2009, and
foreclosures of single family homes rose to levels not seen in the prior five years. The downturn in the housing market
has slowed. These economic conditions can result in borrowers defaulting on their loans, or withdrawing their funds on
deposit at the Bank to meet their financial obligations. While we have seen an increase in deposits, we have also seen a
significant increase in delinquent loans, resulting in an increase in our provision for loan losses, although we have seen
improvements in 2013. This increase in delinquent loans primarily consists of mortgage loans collateralized by
residential income producing properties that are located in the New York City metropolitan market. Given New York
City’s low vacancy rates, the properties have retained their value and have provided us with low loss content in our non-
performing loans. We cannot predict the effect of these economic conditions on our financial condition or operating
results.
A decline in the local or national economy or the New York City metropolitan area real estate market could
adversely affect our financial condition and results of operations, including through decreased demand for loans or
increased competition for good loans, increased non-performing loans and loan losses and resulting additional provisions
for loan losses and for losses on real estate owned. Although management believes that the current allowance for loan
losses is adequate in light of current economic conditions, many factors could require additions to the allowance for loan
losses in future periods above those currently maintained. These factors include: (1) adverse changes in economic
conditions and changes in interest rates that may affect the ability of borrowers to make payments on loans, (2) changes
in the financial capacity of individual borrowers, (3) changes in the local real estate market and the value of our loan
collateral, and (4) future review and evaluation of our loan portfolio, internally or by regulators. The amount of the
allowance for loan losses at any time represents good faith estimates that are susceptible to significant changes due to
changes in appraisal values of collateral, national and local economic conditions, prevailing interest rates and other
factors. See “Business — General — Allowance for Loan Losses” in Item 1 of this Annual Report.
These same factors have caused delinquencies to increase for the mortgages which are the collateral for the
mortgage-backed securities we hold in our investment portfolio. Combining the increased delinquencies with liquidity
problems in the market has resulted in a decline in the market value of our investments in privately issued mortgage-
backed securities. There can be no assurance that the decline in the market value of these investments will not result in
an other-than-temporary impairment charge being recorded in our financial statements.”
49
Changes in Laws and Regulations Could Adversely Affect Our Business
From time to time, legislation, such as the Dodd-Frank Act, is enacted or regulations are promulgated that have
the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the
competitive balance between banks and other financial institutions. Proposals to change the laws and regulations
governing the operations and taxation of banks and other financial institutions are frequently made in Congress, in the
New York legislature and before various bank regulatory agencies. No prediction can be made as to the likelihood of
any major changes (in addition to the Dodd-Frank Act) or the impact such changes might have on us. For a discussion of
regulations affecting us, see “Business —Regulation” and “Business—Federal, State and Local Taxation” in Item 1 of
this Annual Report.
There can be no assurance as to the actual impact that any laws, regulations or governmental programs that may
be introduced or implemented in the future will have on the financial markets and the economy. A continuation or
worsening of current financial market conditions could materially and adversely affect our business, financial condition,
results of operations, and access to credit or the trading price of our securities.
Current Conditions in, and Regulation of, the Banking Industry May Have a Material Adverse Effect on Our
Results of Operations
Financial institutions have been the subject of significant legislative and regulatory changes and may be the
subject of further significant legislation or regulation in the future, none of which is within our control. Significant new
laws or regulations or changes in, or repeals of, existing laws or regulations, including those with respect to federal and
state taxation, may cause our results of operations to differ materially. In addition, the cost and burden of compliance,
over time, have significantly increased and could adversely affect our ability to operate profitably.
On July 21, 2010, President Obama signed the Dodd-Frank Act into law. The Dodd-Frank Act is intended to
address perceived weaknesses in the U.S. financial regulatory system and prevent future economic and financial crises.
There are many provisions of the Dodd-Frank Act which will be implemented through regulations to be adopted within
specified time frames following the effective date of the Dodd-Frank Act, which creates a risk of uncertainty as to the
effect that such provisions will ultimately have. The full impact of the changes in regulation will depend on new
regulations that have yet to be written. The new regulations could have a material adverse effect on our business,
financial condition or results of operations. Although it is not possible for us to determine at this time whether the Dodd-
Frank Act will have a material adverse effect on our business, financial condition or results of operations, we believe the
following provisions of the Dodd-Frank Act will have an impact on us:
(cid:120)
(cid:120)
New Primary Regulatory. On July 21, 2011, the OTS, our then primary federal regulator, was eliminated
and the OCC took over the regulation of all federal savings banks, such as the Savings Bank. The Federal
Reserve acquired the OTS’s authority over all savings and loan holding companies, such as the Bank’s
holding company, and became the supervisor of all subsidiaries of savings and loan holding companies
other than depository institutions. As a result, we became subject to regulation, supervision and
examination by two federal banking agencies, the OCC and the Federal Reserve, rather than just by the
OTS, as was previously the case. The OCC was replaced by the FDIC as the Bank’s federal regulator as a
result of the Merger and the Savings Bank’s conversion from thrift to a bank. The Dodd-Frank Act also
provided for the creation of the Consumer Financial Protection Bureau (the “CFPB”). The CFPB has the
authority to implement and enforce a variety of existing consumer protection statutes and to issue new
regulations. As a new independent bureau within the FRB, it is possible that the CFPB will focus more
attention on consumers and may impose requirements more severe than the previous bank regulatory
agencies.
Consolidated Holding Company Capital Requirements. The Dodd-Frank Act requires the federal banking
agencies to establish consolidated risk-based and leverage capital requirements for insured depository
institutions, depository institution holding companies and systemically important nonbank financial
companies. These requirements must be no less than those to which insured depository institutions are
currently subject, and the new requirements will effectively eliminate the use of newly-issued trust
preferred securities as a component of Tier 1 Capital for depository institution holding companies of our
size. As a result, no later than the fifth anniversary of the effective date of the Dodd-Frank Act, we will
become subject to consolidated capital requirements to which we have not previously been subject.
Effective February 28, 2013, as a result of the Merger, the Holding Company became a bank holding
company and it became subject to consolidated capital requirements.
50
(cid:120)
Roll Back of Federal Preemption. The Dodd-Frank Act significantly rolls back the federal preemption of
state consumer protection laws that federal savings associations and national banks currently enjoy by (1)
permitting federal preemption of a state consumer financial law only if such law prevents or significantly
interferes with the exercise of a federal savings association’s or national bank’s powers or such state law is
preempted by another federal law, (2) mandating that any preemption decision be made on a case by case
basis rather than a blanket rule, and (3) ending the applicability of preemption to subsidiaries and affiliates
of national banks and federal savings associations. As a result, we may now be subject to state laws in each
state where we do business, and those laws may be interpreted and enforced differently in different states.
The Dodd-Frank Act also includes provisions, subject to further rulemaking by the federal bank regulatory
agencies, that may affect our future operations, including provisions that create minimum standards for the origination of
mortgages, restrict proprietary trading by banking entities, restrict the sponsorship of and investment in hedge funds and
private equity funds by banking entities that remove certain obstacles to the conversion of savings associations to
national banks. We will not be able to determine the impact of these provisions until final rules are promulgated to
implement these provisions and other regulatory guidance is provided interpreting these provisions.
Certain Anti-Takeover Provisions May Increase the Costs to or Discourage an Acquirer
On September 5, 2006, the Board of Directors renewed our Stockholder Rights Plan (the “Rights Plan”), which
was originally adopted on and had been in place since September 17, 1996 and had been scheduled to expire on
September 30, 2006. The Rights Plan was designed to preserve long-term values and protect stockholders against
inadequate offers and other unfair tactics to acquire control of us. Under the Rights Plan, each stockholder of record at
the close of business on September 30, 2006 received a dividend distribution of one right to purchase from the Company
one one-hundredth of a share of Series A junior participating preferred stock at a price of $65. The rights will become
exercisable only if a person or group acquires 15% or more of our common stock or commences a tender or exchange
offer which, if consummated, would result in that person or group owning at least 15% of the Common Stock (the
“acquiring person or group”). In such case, all stockholders other than the acquiring person or group will be entitled to
purchase, by paying the $65 exercise price, Common Stock (or a common stock equivalent) with a value of twice the
exercise price. In addition, at any time after such event, and prior to the acquisition by any person or group of 50% or
more of the Common Stock, the Board of Directors may, at its option, require each outstanding right (other than rights
held by the acquiring person or group) to be exchanged for one share of Common Stock (or one common stock
equivalent). If a person or group becomes an acquiring person and we are acquired in a merger or other business
combination or sell more than 50% of our assets or earning power, each right will entitle all other holders to purchase, by
payment of $65 exercise price, common stock of the acquiring company with a value of twice the exercise price. The
renewed rights plan expires on September 30, 2016.
The Rights Plan, as well as certain provisions of our certificate of incorporation and bylaws, the Bank’s charter
and bylaws, certain federal regulations and provisions of Delaware corporation law, and certain provisions of
remuneration plans and agreements applicable to employees and officers of the Bank may have anti-takeover effects by
discouraging potential proxy contests and other takeover attempts, particularly those which have not been negotiated
with the Board of Directors. The Rights Plan and those other provisions, as well as applicable regulatory restrictions,
may also prevent or inhibit the acquisition of a controlling position in the Common Stock and may prevent or inhibit
takeover attempts that certain stockholders may deem to be in their or other stockholders’ interest or in our interest, or in
which stockholders may receive a substantial premium for their shares over then current market prices. The Rights Plan
and those other provisions may also increase the cost of, and thus discourage, any such future acquisition or attempted
acquisition, and would render the removal of the current Board of Directors or management of the Company more
difficult.
We May Not Be Able to Successfully Implement Our Commercial Business Banking Initiative
Our strategy includes a transition to a more “commercial-like” banking institution. We have developed a
complement of deposit, loan and cash management products to support this initiative, and intend to expand these product
offerings. A business banking unit builds relationships in order to obtain lower-costing deposits, generate fee income,
and originate commercial business loans. The success of this initiative is dependent on developing additional product
offerings, and building relationships to obtain the deposits and loans. There can be no assurance that we will be able to
successfully implement our business strategy with respect to this initiative.
51
The FDIC’s Adopted Restoration Plan and the Related Increased Assessment Rate Schedule May Have a
Material Effect on Our Results of Operations
On October 19, 2010, the FDIC Board adopted a new restoration plan to ensure that the DIF reserve ratio
reaches 1.35% by September 30, 2020, as required by the Dodd-Frank Act, rather than 1.15% by the end of 2016 (as
required under the prior restoration plan). Among other things, the new restoration plan provides that the FDIC will
forego the uniform three basis point increases in initial assessment rates that was previously scheduled to take effect on
January 1, 2011 and maintains the current assessment rate schedule. The FDIC intends to pursue further rulemaking
regarding the requirement under the Dodd-Frank Act that the FDIC offset the effect on institutions with less than $10
billion in assets (such as us) of the requirement that the reserve ratio reach 1.35% by September 30, 2020, so that more of
the cost of raising the reserve ratio to 1.35% will be borne by institutions with more than $10 billion in assets. In this
connection, the FDIC Board approved a rule that implemented a provision in the Dodd-Frank Act that changes the
assessment base from one based on domestic deposits (as it has been since 1935) to one based on total average assets less
Tier 1 Capital (as defined for regulatory purposes). The FDIC also lowered assessment rates. Effective April 1, 2011,
the new assessment base is based on assets rather than domestic deposits which is a much larger assessment base than in
the past. The range of the base assessment rates is 2.5 to 45 basis points, whereas the prior range was 7 to 77.5 basis
points. In addition, the FDIC Board approved setting the designated DIF reserve ratio at 2% as a long-term, minimum
goal, adopt a lower assessment rate schedule when the reserve ratio reaches 1.15% and, in lieu of FDIC dividends, adopt
progressively lower assessment rate schedules when the reserve ratio reaches 2% and 2.5%. Another rule approved by
the FDIC Board, which replaces a proposed rule approved by the FDIC on April 13, 2010, would revise the deposit
insurance assessment system for insured depository institutions with over $10 billion in assets. This rule is not directly
applicable to us.
There is no guarantee that the rules described above be sufficient for the DIF to meet its funding requirements,
which may necessitate further rulemaking, special assessments or increases in deposit insurance premiums. Any such
future rulemaking, assessments or increases could have a further material impact on our results of operations.
A Failure in or Breach of Our Operational or Security Systems or Infrastructure, or Those of Our Third Party
Vendors and Other Service Providers, Including as a Result of Cyber Attacks, Could Disrupt Our Business,
Result in the Disclosure or Misuse of Confidential or Proprietary Information, Damage Our Reputation, Increase
Our Costs and Cause Losses.
We depend upon our ability to process, record and monitor our client transactions on a continuous basis. As
client, public and regulatory expectations regarding operational and information security have increased, our operational
systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions and
breakdowns. Our business, financial, accounting and data processing systems, or other operating systems and facilities,
may stop operating properly or become disabled or damaged as a result of a number of factors, including events that are
wholly or partially beyond our control. For example, there could be electrical or telecommunications outages; natural
disasters such as earthquakes, tornadoes and hurricanes; disease pandemics; events arising from local or larger scale
political or social matters, including terrorist acts; and, as described below, cyber-attacks. Although we have business
continuity plans and other safeguards in place, our business operations may be adversely affected by significant and
widespread disruption to our physical infrastructure or operating systems that support our business and clients.
Information security risks for financial institutions such as ours have generally increased in recent years in part
because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct
financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, activists and
other external parties. As noted above, our operations rely on the secure processing, transmission and storage of
confidential information in our computer systems and networks. Our business relies on our digital technologies,
computer and email systems, software and networks to conduct its operations. In addition, to access our products and
services, our clients may use personal smartphones, tablet PC’s, personal computers and other mobile devices that are
beyond our control systems. Although we have information security procedures and controls in place, our technologies,
systems, networks and our clients’ devices may become the target of cyber-attacks or information security breaches that
could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our clients’
confidential, proprietary and other information, or otherwise disrupt our or our clients’ or other third parties’ business
operations.
Third parties with whom we do business or that facilitate our business activities, including financial
intermediaries or vendors that provide services or security solutions for our operations, could also be sources of
52
operational and information security risk to us, including from breakdowns or failures of their own systems or capacity
constraints.
Although to date we have not experienced any material losses relating to cyber-attacks or other information
security breaches, there can be no assurance that we will not suffer such losses in the future. Our risk and exposure to
these matters remains heightened because of the evolving nature of these threats. As a result, cyber security and the
continued development and enhancement of our controls, processes and practices designed to protect our systems,
computers, software, data and networks from attack, damage or unauthorized access remain a focus for us. As threats
continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective
measures or to investigate and remediate information security vulnerabilities.
Disruptions or failures in the physical infrastructure or operating systems that support our business and clients,
or cyber-attacks or security breaches of the networks, systems or devices that our clients use to access our products and
services could result in client attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or
other compensation costs and/or additional compliance costs, any of which could materially and adversely affect our
financial condition or results of operations.
We May Experience Increased Delays in Foreclosure Proceedings
Foreclosure proceedings face increasing delays. While we cannot predict the ultimate impact of any delay in
foreclosure sales, we may be subject to additional borrower and non-borrower litigation and governmental and regulatory
scrutiny related to our past and current foreclosure activities. Delays in foreclosure sales, including any delays beyond
those currently anticipated could increase the costs associated with our mortgage operations and make it more difficult
for us to prevent losses in our loan portfolio.
We May Need to Recognize Other-Than-Temporary Impairment Charges in the Future
We conduct a periodic review and evaluation of the securities portfolio to determine if the decline in the fair
value of any security below its cost basis is other-than-temporary. Factors which we consider in our analysis include, but
are not limited to, the severity and duration of the decline in fair value of the security, the financial condition and near-
term prospects of the issuer, whether the decline appears to be related to issuer conditions or general market or industry
conditions, our intent and ability to retain the security for a period of time sufficient to allow for any anticipated recovery
in fair value and the likelihood of any near-term fair value recovery. We generally view changes in fair value caused by
changes in interest rates as temporary. However, we have recorded other-than-temporary impairment charges on some
securities in our portfolio. If we deem such decline to be other-than-temporary, the security is written down to a new
cost basis and the resulting loss is charged to earnings as a component of non-interest income.
We continue to monitor the fair value of our securities portfolio as part of our ongoing other-than-temporary
impairment evaluation process. There can be no assurance that we will not need to recognize other-than-temporary
impairment charges related to securities in the future.
The Current Economic Environment Poses Significant Challenges for us and Could Adversely Affect our
Financial Condition and Results of Operations
We are operating in a challenging and uncertain economic environment, including generally uncertain national
conditions and local conditions in our markets. While the national and local economies showed signs of improvement
since the second half of 2009, unemployment has remained at elevated levels. The housing market in the United States
continued to see a significant slowdown during 2009, and foreclosures of single family homes rose to levels not seen in
the prior five years. The housing market has shown improvement in 2013, but has not returned to pre-recession levels.
Financial institutions continue to be affected by sharp declines in the real estate market and constrained financial
markets. While we are taking steps to decrease and limit our exposure to residential mortgage loans, home equity loans
and lines of credit, and construction and land loans, we nonetheless retain direct exposure to the residential and
commercial real estate markets, and we are affected by these events. Further declines in real estate values, home sales
volumes and financial stress on borrowers as a result of the uncertain economic environment, including job losses, could
have an adverse effect on our borrowers or their customers, which could adversely affect our financial condition and
results of operations. The overall deterioration in economic conditions has subjected us to increased regulatory scrutiny.
In addition, further deterioration in national or local economic conditions in our markets could drive losses beyond that
which is provided for in our allowance for loan losses and result in the following other consequences: loan
delinquencies, problem assets and foreclosures may increase; demand for our products and services may decline;
deposits may decrease, which would adversely impact our liquidity position; and collateral for our loans, especially real
53
estate, may decline in value, in turn reducing customers’ borrowing power, and reducing the value of assets and
collateral associated with our existing loans. These same factors have caused delinquencies to increase for the mortgages
which are the collateral for the mortgage-backed securities that we hold in our investment portfolio. Combining the
increased delinquencies with liquidity problems in the market has resulted in a decline in the market value of our
investments in mortgage-backed securities. There can be no assurance that the decline in the market value of these
investments will not cause us to record an other-than-temporary impairment charge in our financial statements.
We May Not Pay Dividends on Our Common Stock
Holders of shares of our common stock are only entitled to receive such dividends as our Board of Directors
may declare out of funds legally available for such payments. Although we have historically declared cash dividends on
our common stock, we are not required to do so and may reduce or eliminate our common stock dividend in the future.
This could adversely affect the market price of our common stock.
Goodwill Recorded as a Result of Acquisitions Could Become Impaired, Negatively Impacting Our Earnings and
Capital
Goodwill is presumed to have an indefinite life and is tested annually, or when certain conditions are met, for
impairment. If the fair value of the reporting unit is greater than the goodwill amount, no further evaluation is required
and no impairment is recorded. If the fair value of the reporting unit is less than the goodwill amount, further evaluation
would be required to compare the fair value of the reporting unit to the goodwill amount and determine if a write down is
required. Management views the Company as operating as a single unit - a community bank. At December 31, 2013, we
had goodwill with a carrying amount of $16.1 million. Declines in the fair value of the reporting unit may result in a
future impairment charge. Any such impairment charge could have a material effect on our earnings and capital.
We May Not Fully Realize the Expected Benefit of Our Deferred Tax Assets
At December 31, 2013, we have a deferred tax asset of $37.7 million. This represents the anticipated federal,
state and local tax benefits expected to be realized in future years upon the utilization of the underlying tax attributes
comprising this balance. In order to use the future benefit of these deferred tax assets, we will need to report taxable
income for federal, state and local tax purposes. Although we have reported taxable income for federal, state, and local
tax purposes in each of the past three years, there can be no assurance that this will continue in the future.
Item 1B. Unresolved Staff Comments.
None.
Item 2.Properties.
At December 31, 2013, the Bank conducted its business through 17 full-service offices and its internet branch,
“iGObanking.com®”.
Flushing Financial Corporation neither owns nor leases any property but instead uses the premises and
equipment of the Bank.
Item 3. Legal Proceedings.
We are involved in various legal actions arising in the ordinary course of our business which, in the aggregate,
involve amounts which are believed by management to be immaterial to our financial condition, results of operations and
cash flows.
Item 4. Mine Safety Disclosures.
Not applicable
54
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Flushing Financial Corporation Common Stock is traded on the NASDAQ Global Select Market® under the
symbol “FFIC.” As of December 31, 2013, we had approximately 756 shareholders of record, not including the number
of persons or entities holding stock in nominee or street name through various brokers and banks. Our stock closed at
$20.70 on December 31, 2013. The following table shows the high and low sales price of the Common Stock and the
dividends declared on the Common Stock during the periods indicated. Such prices do not necessarily reflect retail
markups, markdowns, or commissions. (See Note 13 of Notes to Consolidated Financial Statements in Item 8 of this
Annual Report for dividend restrictions.)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
High
17.10
16.87
19.88
21.70
$
2013
Low
15.02
15.02
16.40
17.96
Dividend
0.13
$
0.13
0.13
0.13
$
High
14.48
13.83
17.01
16.41
$
2012
Low
12.36
12.26
13.19
13.67
Dividend
0.13
$
0.13
0.13
0.13
The following table sets forth information regarding the shares of common stock repurchased by us during the
quarter ended December 31, 2013:
Total
Number
of Shares
Purchased
Average Price
Paid per Share
-
-
-
-
$
$
-
-
-
-
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
-
-
-
-
Maximum
Number of
Shares That May
Yet Be Purchased
Under the Plans
or Programs
549,870
549,870
549,870
Period
October 1 to October 31, 2013
November 1 to November 30, 2013
December 1 to December 31, 2013
Total
During the year ended December 31, 2013, the Company completed the common stock repurchase program that
was approved by the Company’s Board of Directors on September 20, 2011. On May 22, 2013, the Company
announced the authorization by the Board of Directors of a new common stock repurchase program, which authorizes the
purchase of up to 1,000,000 shares of its common stock. During the years ended December 31, 2013 and 2012, the
Company repurchased 836,092 shares and 352,000 shares, respectively, of the Company’s common stock at an average
cost of $15.73 per share and $14.26 per share, respectively. At December 31, 2013, 549,870 shares remain to be
repurchased under the current stock repurchase program. Stock will be purchased under the current stock repurchase
program from time to time, in the open market or through private transactions subject to market conditions and at the
discretion of the management of the Company. There is no expiration or maximum dollar amount under this
authorization.
55
The following table sets forth securities authorized for issuance under all equity compensation plans of the
Company at December 31, 2013:
(a)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(b)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)
306,630
-
306,630
$
$
16.02
-
16.02
431,578
-
431,578
Equity compensation plans approved
by security holders
Equity compensation plans not
approved by security holders
(1) Consists of 56,920 shares available for future non-full value awards and 374,658 shares available for future full value awards.
56
Stock Performance Graph
The following graph shows a comparison of cumulative total stockholder return on the Company’s common
stock since December 31, 2008 with the cumulative total returns of a broad equity market index as well as comparative
published industry indices. The broad equity market index chosen was the Nasdaq Composite. As a result of the Bank’s
conversion to a commercial bank charter, we are changing two of the comparative published industry indices. The
published industry indices being replaced are the SNL Thrift Index and SNL Mid-Atlantic Thrift Index, as they only
include Thrift institutions. The replacement indices are the SNL Bank $1 Billion to $5 Billion in Assets Index and the
SNL Mid-Atlantic Bank Index. The SNL Mid-Atlantic Bank Index was chosen for inclusion in the Company’s Stock
Performance Graph because the Company believes it provides valuable comparative information reflecting the
Company’s geographic peer group. The SNL Bank $1 Billion to $5 Billion in Assets Index was chosen for inclusion in
the Company’s Stock Performance Graph because it uses a broader group of banks and therefore more closely reflects
the Company’s size. The Company believes that both geographic area and size are important factors in analyzing the
Company’s performance against its peers. The graph below reflects historical performance only, which is not indicative
of possible future performance of the common stock.
Total Return Performance
Flushing Financial Corporation
NASDAQ Composite
SNL Thrift
SNL Mid-Atlantic Thrift
SNL Bank $1 billion to $5 billion
in assets
SNL Mid-Atlantic Bank
300
280
260
240
220
200
180
160
140
120
100
80
60
e
u
l
a
V
x
e
d
n
I
40
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
The total return assumes $100 invested on December 31, 2008 and all dividends
reinvested through the end of the Company’s fiscal year ended December 31, 2013. The
performance graph above is based upon closing prices on the trading date specified.
Index
Flushing Financial Corporation
NASDAQ Composite
SNL Thrift
SNL Mid-Atlantic Thrift
SNL Bank $1 Billion to $5 Billion
SNL Mid-Atlantic Bank
12/31/08
100.00
100.00
100.00
100.00
100.00
100.00
12/31/09
100.15
145.32
93.26
95.38
71.68
105.27
57
Period Ending
12/31/10
129.89
171.50
97.45
109.51
81.25
122.81
12/31/11
122.21
170.08
81.97
84.49
74.10
92.26
12/31/12
154.06
199.76
99.70
101.52
91.37
123.59
12/31/13
214.19
279.90
127.95
132.04
132.87
166.59
Item 6.Selected Financial Data.
At or for the years ended December 31,
2013
2011
2012
(Dollars in thousands, except per share data)
2010
2009
Selected Financial Condition Data
Total assets
Loans, net
Securities available for sale
Deposits
Borrowed funds
Total stockholders' equity
Common stockholders' equity
Book value per common share (1)
Selected Operating Data
Interest and dividend income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision
for loan losses
Non-interest income:
Net gains on sales of securities
and loans
Other-than-temporary credit impairment
charge on securities
Net (loss) gain from fair value adjustments
Other income
Total non-interest income
Non-interest expense
Income before income tax provision
Income tax provision
Net income
Basic earnings per common share (2)
Diluted earnings per common share (2)
Dividends declared per common share (2)
Dividend payout ratio
$
$
$
$
$
$
$
$
$
$
4,721,501
3,402,402
1,017,790
3,232,780
1,012,122
432,532
432,532
14.36
200,526
54,863
145,663
13,935
$
$
$
4,451,416
3,203,017
949,566
3,015,193
948,405
442,365
442,365
14.39
213,714
63,275
150,439
21,000
4,287,949
3,198,537
812,530
3,146,245
685,139
416,911
416,911
13.49
224,498
76,723
147,775
21,500
$
$
$
4,324,745
3,248,630
804,189
3,190,610
708,683
390,045
390,045
12.48
229,628
91,767
137,861
21,000
$
$
$
4,143,246
3,200,159
683,804
2,693,115
1,060,245
360,144
360,144
11.57
230,061
115,275
114,786
19,500
131,728
129,439
126,275
116,861
95,286
3,021
69
511
7
1,613
(1,419)
(2,521)
10,475
9,556
80,576
60,708
22,956
37,752
1.26
1.26
0.52
41.3%
$
$
$
$
(776)
55
9,717
9,065
82,326
56,178
21,847
34,331
1.13
1.13
0.52
46.0%
$
$
$
$
(1,578)
1,960
9,388
10,281
77,739
58,817
23,469
35,348
1.15
1.15
0.52
45.2%
$
$
$
$
(2,045)
47
10,291
8,300
70,385
54,776
15,941
38,835
1.28
1.28
0.52
40.6%
$
$
$
$
(5,894)
4,968
10,268
10,955
64,909
41,332
15,771
25,561
0.91
0.91
0.52
57.1%
(Footnotes on the following page)
58
At or for the years ended December 31,
2013
2012
2011
2010
2009
Selected Financial Ratios and Other Data
Performance ratios:
Return on average assets
Return on average equity
Average equity to average assets
Equity to total assets
Interest rate spread
Net interest margin
Non-interest expense to average assets
Efficiency ratio
Average interest-earning assets to average
interest-bearing liabilities
0.82 %
8.73
9.45
9.16
3.25
3.37
1.76
50.64
0.79 %
7.99
9.83
9.94
3.50
3.65
1.88
50.73
0.82 %
8.76
9.36
9.72
3.46
3.61
1.80
49.18
0.92 %
10.32
8.89
9.02
3.27
3.43
1.66
47.37
0.63 %
7.80
8.06
8.69
2.76
2.96
1.60
51.76
1.10 x
1.09 x
1.08 x
1.07 x
1.07 x
Regulatory capital ratios: (3)
Core capital (well capitalized = 5%)
Tier 1 risk-based capital (well capitalized =6%)
Total risk-based capital (well capitalized =10%)
9.48 %
9.62 %
9.63 %
9.18 %
8.84 %
14.59
15.63
14.38
15.43
14.26
15.32
13.07
13.98
12.78
13.49
Asset quality ratios:
Non-performing loans to gross loans (4)
Non-performing assets to total assets (5)
Net charge-offs to average loans
Allowance for loan losses to gross loans
Allowance for loan losses to total
non-performing assets (5)
Allowance for loan losses to total
non-performing loans (4)
Full-service customer facilities
1.43 %
1.14
0.41
0.93
2.79 %
2.21
0.64
0.97
3.65 %
2.87
0.59
0.94
3.44 %
2.75
0.42
0.85
59.04
64.89
17
31.59
34.62
17
24.63
25.84
16
23.31
24.71
15
2.60 %
2.19
0.33
0.63
22.39
24.38
15
(1) Calculated by dividing common stockholders’ equity of $432.5 million and $442.4 million at December 31, 2013 and 2012, respectively, by
30,123,252 and 30,743,329 shares outstanding at December 31, 2013 and 2012, respectively. Common stockholders’ equity is total stockholders’
equity less the liquidation preference value of preferred shares outstanding.
(2) The shares held in the Company’s Employee Benefit Trust are not included in shares outstanding for purposes of calculating earnings per share.
(3) Represents the Bank’s capital ratios, which exceeded all minimum regulatory capital requirements during the periods presented.
(4) Non-performing loans consist of non-accrual loans and loans delinquent 90 days or more that are still accruing.
(5) Non-performing assets consist of non-performing loans, real estate owned and non-performing investment securities.
59
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
As used in this discussion and analysis, the words “we,” “us,” “our” and the “Company” are used to refer to
Flushing Financial Corporation and our consolidated subsidiaries, including the surviving entity of the merger (the
“Merger”) on February 28, 2013 of our wholly owned subsidiary, Flushing Savings Bank, FSB (the “Savings Bank”)
with and into the Savings Bank’s wholly owned subsidiary Flushing Commercial Bank (the “Commercial Bank”). The
surviving entity of the Merger was the Commercial Bank, whose name has been changed to “Flushing Bank”.
References herein to the “Bank” mean the Savings Bank (including its wholly owned subsidiary, the Commercial Bank)
prior to the Merger and the surviving entity after the Merger.
General
We are a Delaware corporation organized in May 1994. The Savings Bank was organized in 1929 as a New
York State-chartered mutual savings bank. In 1994, the Savings Bank converted to a federally chartered mutual savings
bank and changed its name from Flushing Savings Bank to Flushing Savings Bank, FSB. The Savings Bank converted
from a federally chartered mutual savings bank to a federally chartered stock savings bank in 1995. On February 28,
2013, in the Merger, the Savings Bank merged with and into the Commercial Bank, with the Commercial Bank as the
surviving entity. Pursuant to the Merger, the Commercial Bank’s charter was changed to a New York State full-service
commercial bank charter, and its name was changed to Flushing Bank. Also in connection with the Merger, Flushing
Financial Corporation became a bank holding company. We do not anticipate any significant changes to our operations
or services as a result of the Merger.
On July 21, 2011, as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-
Frank Act”), the Savings Bank’s primary regulator became the Office of the Comptroller of the Currency (“OCC”).
Upon completion of the Merger, the Bank’s primary regulator became the New York State Department of Financial
Services (“NYSDFS”), (formerly the New York State Banking Department), and its federal regulator became the Federal
Deposit Insurance Corporation (“FDIC”). The Bank’s deposits are insured to the maximum allowable amount by the
FDIC. The Bank owns three subsidiaries: Flushing Preferred Funding Corporation, Flushing Service Corporation, and
FSB Properties Inc.
Flushing Financial Corporation also owns Flushing Financial Capital Trust II, Flushing Financial Capital Trust
III, and Flushing Financial Capital Trust IV (the “Trusts”), which are special purpose business trusts formed during 2007
to issue a total of $60.0 million of capital securities, and $1.9 million of common securities (which are the only voting
securities). Flushing Financial Corporation owns 100% of the common securities of the Trusts. The Trusts used the
proceeds from the issuance of these securities to purchase junior subordinated debentures from Flushing Financial
Corporation. The Trusts are not included in our consolidated financial statements as we would not absorb the losses of
the Trusts if losses were to occur.
The following discussion of financial condition and results of operations includes the collective results of the
Flushing Financial Corporation and its subsidiaries (collectively, the “Company”), but reflects principally the Bank’s
activities. Management views the Company as operating as a single unit - a community bank. Therefore, segment
information is not provided.
The Bank has a business banking unit. Our business strategy includes a transition from a traditional thrift to a
more “commercial-like” banking institution by focusing on the development of a full complement of commercial
business deposit, loan and cash management products. As of December 31, 2013, the business banking unit had $378.3
million in gross loans outstanding and $138.5 million of customer deposits.
The Bank has an internet branch, iGObanking.com®, which provides access to consumers in markets outside
our geographic locations. Accounts can be opened online at www.iGObanking.com or by mail. The internet branch does
not currently accept loan applications. As of December 31, 2013, the internet branch had $293.2 million of customer
deposits.
60
The Savings Bank formed a wholly owned subsidiary, Flushing Commercial Bank, a New York State-chartered
commercial bank, for the limited purpose of providing banking services to public entities including counties, cities,
towns, villages, school districts, libraries, fire districts and the various courts throughout the New York City metropolitan
area. The Commercial Bank was formed in response to New York State law, which requires that municipal deposits and
state funds must be deposited into a bank or trust company as defined in New York State law. The Savings Bank was not
considered an eligible bank or trust company for this purpose. On February 28, 2013, in the Merger, the Savings Bank
merged with and into the Commercial Bank, with the Commercial Bank as the surviving entity. Pursuant to the Merger,
the Commercial Bank’s charter was changed to a full-service New York State commercial bank charter, and its name
was changed to Flushing Bank.
The Merger was the result of the combination of two entities under common control, and in accordance with ASC 805-
50-30-5, the Bank measured the recognized assets and liabilities transferred at their carrying amounts (historical cost) for
this transaction.
Overview
Our principal business is attracting retail deposits from the general public and investing those deposits together
with funds generated from ongoing operations and borrowings, primarily in (1) originations and purchases of multi-
family residential properties and, to a lesser extent, one-to-four family (focusing on mixed-use properties, which are
properties that contain both residential dwelling units and commercial units) and commercial real estate mortgage loans;
(2) construction loans, primarily for residential properties; (3) Small Business Administration (“SBA”) loans and other
small business loans; (4) mortgage loan surrogates such as mortgage-backed securities; and (5) U.S. government
securities, corporate fixed-income securities and other marketable securities. We also originate certain other consumer
loans including overdraft lines of credit. Our results of operations depend primarily on net interest income, which is the
difference between the income earned on its interest-earning assets and the cost of our interest-bearing liabilities. Net
interest income is the result of our interest rate margin, which is the difference between the average yield earned on
interest-earning assets and the average cost of interest-bearing liabilities, adjusted for the difference in the average
balance of interest-earning assets as compared to the average balance of interest-bearing liabilities. We also generate
non-interest income from loan fees, service charges on deposit accounts, mortgage servicing fees, and other fees, income
earned on Bank Owned Life Insurance (“BOLI”), dividends on Federal Home Bank of New York (“FHLB-NY”) stock
and net gains and losses on sales of securities and loans. Our operating expenses consist principally of employee
compensation and benefits, occupancy and equipment costs, other general and administrative expenses and income tax
expense. Our results of operations also can be significantly affected by our periodic provision for loan losses and specific
provision for losses on real estate owned.
Management Strategy. Our strategy is to continue our focus on being an institution serving consumers,
businesses, and governmental units in our local markets. In furtherance of this objective, we intend to:
(cid:120)
(cid:120)
(cid:120)
continue our emphasis on the origination of multi-family residential mortgage loans;
transition from a traditional thrift to a more ‘commercial-like’ banking institution;
increase our commitment to the multi-cultural marketplace, with a particular focus on the Asian community in
Queens;
(cid:120) maintain asset quality;
(cid:120) manage deposit growth and maintain a low cost of funds through
business banking deposits,
(cid:131)
(cid:131) municipal deposits through government banking, and
new customer relationships via iGObanking.com®;
(cid:131)
cross sell to lending and deposit customers;
take advantage of market disruptions to attract talent and customers from competitors;
(cid:120)
(cid:120)
(cid:120) manage interest rate risk and capital: and
(cid:120) manage enterprise-wide risk.
There can be no assurance that we will be able to effectively implement this strategy. Our strategy is subject to
change by the Board of Directors.
61
Multi-Family Residential Mortgage Lending. In recent years, we have emphasized the origination of
higher-yielding multi-family residential mortgage loans. During 2013 and 2012, we reduced our emphasis on
one-to-four family – mixed-use property and commercial real estate lending. We expect to continue this
emphasis on higher-yielding multi-family residential mortgage loans, while we continue to deemphasize one-to-
four family mixed-use property and commercial real estate lending.
The following table shows loan originations and purchases during 2013, and loan balances as of
December 31, 2013.
Loan
Originations and
Purchases
Loan Balances
December 31,
2013
(Dollars in thousands)
Multi-family residential
Commercial real estate
(cid:50)(cid:81)(cid:72)(cid:16)(cid:87)(cid:82)(cid:16)(cid:73)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:68)(cid:80)(cid:76)(cid:79)(cid:92)(cid:3)(cid:650) mixed-use property
(cid:50)(cid:81)(cid:72)(cid:16)(cid:87)(cid:82)(cid:16)(cid:73)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:68)(cid:80)(cid:76)(cid:79)(cid:92)(cid:3)(cid:650)(cid:3)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)
Co-operative apartment
Construction
Small Business Administration
Taxi Medallion
Commercial Business and Other
Total
$
$
382,041
69,420
40,898
27,495
4,966
3,089
603
9,737
297,745
835,994
$
1,712,039
512,552
595,751
193,726
10,137
4,247
7,792
13,123
373,641
$
3,423,008
100.00 %
Percent of
Gross Loans
50.02 %
14.97
17.40
5.66
0.30
0.12
0.23
0.38
10.92
At December 31, 2013, multi-family residential, commercial real estate, construction and one-to-four
family mixed-use property mortgage loans, totaled 82.5% of our gross loans. Our concentration in these types
of loans has increased the overall level of credit risk inherent in our loan portfolio. The greater risk associated
with multi-family, commercial real estate, construction and one-to-four family mixed-use property mortgage
loans could require us to increase our provisions for loan losses and to maintain an allowance for loan losses as
a percentage of total loans in excess of the allowance currently maintained.
Transition to a More ‘Commercial-like’ Banking Institution. We have an established business banking
unit staffed with a team of experienced commercial bankers. We have developed a complement of deposit, loan
and cash management products to support this initiative, and expanded these product offerings. The business
banking unit is responsible for building business relationships in order to obtain lower-costing deposits,
generate fee income, and originate commercial business loans. Building these business relationships could
provide us with a lower-costing source of funds and higher-yielding adjustable-rate loans, which would help us
manage our interest-rate risk. On February 28, 2013, in the Merger, the Savings Bank merged with and into the
Commercial Bank, with the Commercial Bank as the surviving entity. Pursuant to the Merger, the Commercial
Bank’s charter was changed to a full-service New York State commercial bank charter, and its name was
changed to Flushing Bank.
Increase Our Commitment to the Multi-Cultural Marketplace, with a Particular Focus on the Asian
Community in Queens. Our branches are all located in the New York City metropolitan area with particular
concentration in the borough of Queens. Queens in particular exhibits a high level of ethnic diversity. An
important element of our strategy is to service the multi-ethnic consumer and business. We have a particular
concentration in the Asian communities- among them Chinese and Korean populations. Both groups are noted
for high levels of savings, education and entrepreneurship. In order to service these and other important ethnic
groups in our market, our staff speaks more than 30 languages. We have an Asian advisory board to help
broaden our link to the community by providing guidance and fostering awareness of our active role in the local
community. Our focus on the Asian community in Queens, where we have four branches, has resulted in us
obtaining approximately $400 million in deposits in these branches. We also have over $400 million of loans
and lines of credit outstanding to borrowers in the Asian community.
Maintain Asset Quality. By adherence to our conservative underwriting standards, we have been able
to minimize net losses from impaired loans with net charge-offs of $13.3 million and $20.2 million for the years
ended December 31, 2013 and 2012, respectively. We seek to maintain our loans in performing status through,
62
among other things, disciplined collection efforts, and consistently monitoring non-performing assets in an
effort to return them to performing status. To this end, we review the quality of our loans and report to the Loan
Committee of the Board of Directors of the Bank on a monthly basis. We sold 72 delinquent mortgage loans
totaling $33.4 million, 77 delinquent mortgage loans totaling $44.2 million, and 44 delinquent mortgage loans
totaling $27.8 million during the years ended December 31, 2013, 2012 and 2011, respectively. We recorded
net charge-offs of $4.7 million, $5.7 million and $3.7 million to the allowance for loan losses for the non-
performing loans that were sold during 2013, 2012 and 2011, respectively. We realized gross gains of
$134,000, $21,000 and $167,000 on the sale of non-performing mortgage loans for the years ended December
31, 2013, 2012 and 2011, respectively. We realized gross losses of $81,000 and $69,000 on the sale of non-
performing mortgage loans for the years ended December 31, 2013 and 2012, respectively. We did not record
any gross losses for the year ended December 31, 2011. There can be no assurances that we will continue this
strategy in future periods, or if continued, we will be able to find buyers to pay adequate consideration. Non-
performing assets amounted to $53.8 million and $98.5 million at December 31, 2013 and 2012, respectively.
Non-performing assets as a percentage of total assets were 1.14% and 2.21% at December 31, 2013 and 2012,
respectively.
in
the business sector are $138.5 million. We also have an
Manage Deposit Growth and Maintain Low Cost of Funds. We have a relatively stable retail deposit
base drawn from our market area through our full-service offices. Although we seek to retain existing deposits
and maintain depositor relationships by offering quality service and competitive interest rates to our customers,
we also seek to keep deposit growth within reasonable limits and our strategic plan. In order to implement our
strategic plan, we have a business banking operation that we designed specifically to develop full business
relationships thereby bringing in lower cost checking and money market deposits. At December 31, 2013,
deposits balances
internet branch,
“iGObanking.com®”, as a division of the Bank, to compete for deposits from sources outside the geographic
footprint of our full-service offices. In creating iGObanking.com®, our strategy is to reduce our reliance on
wholesale borrowings and reduce our funding costs. Deposit balances in iGObanking.com® were $293.2
million at December 31, 2013, at rates lower than our borrowings. We have a government banking division,
which prior to the Merger operated as the Commercial Bank, as an additional source of deposits. At December
31, 2013, deposits in our government banking division totaled $867.1 million at rates below our average cost of
funds. We also obtain deposits through brokers and the CDARS® and ICS network. Management intends to
balance its goal to maintain competitive interest rates on deposits while seeking to manage its overall cost of
funds to finance its strategies. We generally rely on our deposit base as our principal source of funding. In
addition, the Bank is a member of the FHLB-NY, which provides us with a source of borrowing. We also utilize
reverse purchase agreements, established with other financial institutions. During 2013, we realized an increase
in Due to depositors of $217.3 million, as core deposits increased $349.6 million while certificates of deposit
decreased $132.3 million. At the same time our borrowed funds increased by $63.7 million as we looked to
extend the maturities of our funding.
Cross Sell to Lending and Deposit Customers. A significant portion of our lending and deposit
customers do not have both their loans and deposits with us. We intend to continue to focus on obtaining
additional deposits from our lending customers and originating additional loans to our deposit customers.
Product offerings were expanded and are expected to be further expanded to accommodate perceived customer
demands. In addition, specific employees are assigned responsibilities of generating these additional deposits
and loans by coordinating efforts between lending and deposit gathering departments.
Take Advantage of Market Disruptions to Attract Talent and Customers From Competitors. The New
York City market place has been dominated by large institutions, many of which recently have run into difficult
situations due to the recessionary environment. During this time period we have been able to attract talent from
such large commercial banks. That talent has brought with it significant business relationships. We have been
able to see a larger number of strong companies that have been caught in a retrenchment by their existing large
institution. We anticipate this environment remaining for some period of time.
We have in the past increased growth through acquisitions of financial institutions and branches of
other financial institutions, and will continue to pursue growth through acquisitions that are, or are expected to
be within a reasonable time frame, accretive to earnings, as well as evaluating the feasibility of opening
additional branches. We have in the past opened new branches. We plan to continue to seek and review
potential acquisition opportunities that complement our current business, are consistent with our strategy to
63
build a bank that is focused on the unique personal and small business banking needs of the multi-ethnic
communities we serve.
Manage Interest Rate Risk and Capital. We seek to manage our interest rate risk by actively reviewing
the repricing and maturities of our interest rate sensitive assets and liabilities. The mix of loans we originate
(fixed or ARM) is determined in large part by borrowers’ preferences and prevailing market conditions. We
seek to manage the interest rate risk of our loan portfolio by actively managing our security portfolio and
borrowings. By adjusting the mix of fixed and adjustable rate securities, as well as the maturities of the
securities, we have the ability to manage the combined interest rate sensitivity of our assets. Additionally, we
seek to balance the interest rate sensitivity of our assets by managing the maturities of our liabilities. The Bank
faces several minimum capital requirements imposed by federal regulation. These requirements limit the
dividends the Bank is allowed to pay, including the payment of dividends to Flushing Financial Corporation,
and can limit the annual growth of the Bank.
Manage Enterprise-Wide Risk. We identify measure and attempt to mitigate risks that affect, or have
the potential to affect, our business. Due to the economic crisis and resulting increase in government regulation,
there is greater demand for us to devote significant resources to risk management. In April 2010, a seasoned risk
officer was hired to provide executive risk leadership, and an enterprise-wide risk management program was
implemented. Several enterprise risk management analytical products have been implemented which include
key risk indicators. Our management of enterprise-wide risk enables us to recognize and monitor risks and
establish procedures to disseminate the risk information across our organization and to our Board of Directors.
The objective is to have a robust and focused risk management process capable of identifying and mitigating
emerging threats to the Bank’s safety and soundness.
Trends and Contingencies. Our operating results are significantly affected by national and local economic and
competitive conditions, including changes in market interest rates, the strength of the local economy, government
policies and actions of regulatory authorities. As short-term interest rates have declined from 2008 through 2013, we
remained strategically focused on the origination of multi-family residential mortgages and to a lesser extent,
commercial real estate and one-to-four family mixed-use property mortgage loans. As a result of this strategy, we were
able to continue to achieve a higher yield on our mortgage portfolio than we would have otherwise experienced.
The New York City metropolitan area, our primary market for lending, was generally considered to be in a
recession from December 2007 through the middle of 2009. In the New York City metropolitan area, building permits
for one-to-four family residential properties, multi-family residential properties, and commercial properties all declined
over this time period to historically low levels. Building permits issued in the New York metropolitan area have
increased over the past several years. The home price index for the New York City metropolitan area declined from the
beginning of 2007 to the end of 2012 by approximately 23.7%, but has increased 4.9% in 2013. The value of multi-
family and commercial properties showed similar price movements.
Building permits for one-to-four family residential properties, multi-family residential properties, and
commercial properties all declined over this time period to historically low levels. This resulted in increased
unemployment and declining property values. The majority of our impaired loans are income producing residential
properties located in the New York City metropolitan market. Due to the low vacancy rates for these types of properties,
they have retained more of their value, thereby reducing their loss content. While the national and local economies have
shown signs of improvement since the middle of 2010, improvements in unemployment have lagged, with the
unemployment rate decreasing but remaining at an elevated level of 7.5% at December 2013 and 8.8% at December
2012, for the New York City region, according to the New York State Department of Labor. These economic conditions
can result in borrowers defaulting on their loans. This lackluster economic performance has resulted in the balance of our
non-performing loans remaining at an elevated level, although non-performing loans declined in 2013 and 2012. Non-
performing loans totaled $49.0 million, $89.8 million and $117.4 million at December 31, 2013, 2012 and 2011,
respectively. While non-performing loans have remained elevated, we have not yet experienced a significant increase in
foreclosed properties due to an extended foreclosure process in our market. The extended foreclosure process in our
market is due to the high number of foreclosure actions filed in the court system in the counties for which we are seeking
foreclosure on delinquent mortgage loans. We have not encountered significant issues with documentation relating to
mortgages for which we are seeking foreclosure as we maintain custody of all loan documents and review them prior to
providing them to our legal counsel to initiate the foreclosure action. The deterioration in the economy also resulted in an
increase in net charge-offs from impaired loans, although improvement was seen in 2013. Net charge-offs totaled $13.3
million, $20.2 million and $18.9 million for the years ended December 31, 2013, 2012 and 2011, respectively. We
experienced a similar trend in the provision for loan losses, as we recorded provisions of $13.9 million, $21.0 million
64
and $21.5 million for the years ended December 31, 2013, 2012 and 2011, respectively. We cannot predict the effect of
these economic conditions on the Company’s future financial condition or operating results.
In addition, in response to the economic conditions in our market combined with the increase in non-performing
loans, we began tightening our underwriting standards in 2008 to reduce the risk associated with lending.
The following changes were made in our underwriting standards since 2008 to reduce the risk associated with
lending on income producing real estate properties:
(cid:131) When borrowers requested a refinance of an existing mortgage loan when they had acquired the
property or obtained their existing loan within two years of the request, we generally required
evidence of improvements to the property that increased the property value to support the
additional funds and generally restricted the loan-to-value ratio for the new loan to 65% of the
appraised value.
(cid:131) The debt coverage ratio was increased and the loan-to-value ratio decreased for income producing
properties with fewer than ten units. This required the borrower to have an additional investment in
the property than previously required and provided additional protection should rental units become
vacant.
(cid:131) Borrowers who owned multiple properties were required to provide detail on all their properties to
allow us to evaluate their total cash flow requirements. Based on this review, we may decline the
loan application, or require a lower loan-to-value ratio and a higher debt coverage ratio.
(cid:131) Income producing properties with existing rents that were at or above the current market rent for
similar properties were required to have a higher debt coverage ratio to provide protection should
rents decline.
(cid:131) Borrowers purchasing properties were required to demonstrate they had satisfactory liquidity and
management ability to carry the property should vacancies occur or increase.
The following changes were made in our underwriting standards since 2008 to reduce the risk on one-to-four
family residential property mortgage loans and home equity lines of credit:
(cid:131) We discontinued originating home equity lines of credit without verifying the borrower’s income.
This was done in two stages. Beginning in May 2008, we began verifying the borrower’s income
when the home equity line of credit exceeded $100,000. Beginning in October 2009, we verified
the income of all borrowers applying for a home equity line of credit.
(cid:131) We discontinued offering one-to-four family residential property mortgage loans to self-employed
individuals based on stated income and verifiable assets in June 2010.
The following changes were made in our underwriting standards since 2008 to reduce the risk associated with
business lending:
(cid:131) All borrowers obtaining a business loan were required to submit a complete financial information
package, regardless of the amount of the loan. Previously, borrowers for SBA Express loans and
other loans under $150,000 had been exempt from this requirement.
(cid:131) Background checks on all borrowers and guarantors for business loans were expanded to identify
and review information in more public records, including a search for judgments, liens, negative
press articles, and affiliations with other entities.
(cid:131) The guarantee of related business entities providing cash flow to the borrowing entity became
required for business loans.
(cid:131) The allowable percentage of inventory and accounts receivable pledged as collateral for a business
loan was reduced.
(cid:131) We established specific risk acceptance criteria for private not for profit schools.
Since 2008, we have reduced our focus on commercial real estate and one-to-four family mixed-use residential
property mortgage loans, which represented $300.6 million, or 50%, of our mortgage loan originations and purchases in
2008 compared to $110.3 million, or 13%, in 2013. In addition to reducing our focus on commercial real estate lending,
we further reduced our origination of smaller commercial real estate properties. We also reduced our focus on
65
construction lending, which we reduced from $30.7 million in advances on existing loans in 2008 to $3.1 million in
advances on existing loans in 2013, and new construction loan approvals from $27.2 million in 2008 to $2.5 million in
2013. We reduced our focus on these types of loans due to changes in market conditions, increasing delinquencies and
losses incurred on delinquent loans associated with these types of loans. The Bank has cautiously resumed the
origination of non-owner occupied commercial real estate.
We also shifted our focus in multi-family lending to larger properties. Our review of delinquent multi-family
mortgage loans revealed that the majority of our delinquent multi-family mortgage loans were on smaller properties with
fewer rental units. We concluded that the more units a property had to rent, the less likely vacancies would cause a
disruption in the property’s cash flow.
While we primarily rely on originating our own loans, we purchased $10.2 million of loans in 2013 compared to
$3.5 million in 2012 and $19.1 million in 2011. We purchase loans when the loans complement our loan portfolio
strategy. Loans purchased must meet our underwriting standards when they were originated.
The economic conditions we have experienced since the end of 2007 reduced loan demand from 2008 through
2012 in our market. In addition, the tightening of our underwriting standards and the shift in our lending focus also
contributed to total loan originations and purchases remaining below pre-recession levels. However, during 2013 loan
originations returned back to pre-recession levels and were a record $836.0 million for 2013, an increase of $203.5
million, or 32.2%, from $632.5 million for 2012.
During the three year period ended December 31, 2013, the allocation of our loan portfolio has remained fairly
consistent. The majority of our loans are collateralized by real estate, which comprised 88.5% of our portfolio at
December 31, 2013 compared to 90.2% at December 31, 2012 and 91.4% at December 31, 2011. Multi-family
residential mortgage loans comprised 50.0%, 47.6% and 43.3% of our loan portfolio at December 31, 2013, 2012 and
2011, respectively. Commercial real estate mortgage loans comprised 15.0%, 16.0% and 18.1% of our loan portfolio at
December 31, 2013, 2012 and 2011, respectively. One-to-four family mixed-use property mortgage loans comprised
17.4%, 19.8% and 21.6% of loan portfolio at December 31, 2013, 2012 and 2011, respectively. One-to-four family
residential mortgage loans comprised 5.7%, 6.2% and 6.9% of loan portfolio at December 31, 2013, 2012 and 2011,
respectively.
Due to depositors increased $217.3 million in 2013 compared to decreases of $133.8 million and $46.8 million
in 2012 and 2011, respectively. Lower-costing core deposits increased $349.6 million and $142.1 million in 2013 and
2012, respectively, compared to a decrease of $55.4 million in 2011. Higher-costing certificates of deposit decreased
$132.3 million and $275.9 million during 2013 and 2012, respectively, compared to an increase of $8.5 million 2011.
Brokered deposits represented 16.0%, 17.3% and 14.1% of total deposits at December 31, 2013, 2012 and 2011,
respectively.
Prevailing interest rates affect the extent to which borrowers repay and refinance loans. In a declining interest
rate environment, the number of loan prepayments and loan refinancing tends to increase, as do prepayments of
mortgage-backed securities. Call provisions associated with our investments in U.S. government agency and corporate
securities may also adversely affect yield in a declining interest rate environment. Such prepayments and calls may
adversely affect the yield of our loan portfolio and mortgage-backed and other securities as we reinvest the prepaid funds
in a lower interest rate environment. However, we typically receive additional loan fees when existing loans are
refinanced, which partially offsets the reduced yield on our loan portfolio resulting from prepayments. In periods of low
interest rates, our level of core deposits also may decline if depositors seek higher-yielding instruments or other
investments not offered by us, which in turn may increase our cost of funds and decrease our net interest margin to the
extent alternative funding sources, are utilized. By contrast, an increasing interest rate environment would tend to extend
the average lives of lower yielding fixed rate mortgages and mortgage-backed securities, which could adversely affect
net interest income. In addition, depositors tend to open longer term, higher costing certificate of deposit accounts which
could adversely affect our net interest income if rates were to subsequently decline. Additionally, adjustable rate
residential mortgage loans and mortgage-backed securities generally contain interim and lifetime caps that limit the
amount the interest rate can increase at re-pricing dates.
During the year ended December 31, 2013, we extended the term of 13 business loans totaling $11.1 million
and 245 mortgage loans totaling $223.9 million, which we did not consider as non-performing loans nor troubled debt
restructured. Each of these loans was extended in accordance with our lending policies, which required the loans to be
fully underwritten, and that each of the borrowers is current as to payments. None of these borrowers was experiencing
financial difficulties, and none received a below market interest rate or other favorable terms at the time the loans were
extended. Therefore, we did not consider these loans to be troubled debt restructured.
66
We attempt to pursue the guarantor on all loans for which a loss has been incurred and for which a guarantee
was obtained, when, after considering the benefits and costs, we have concluded we will be successful in recovering at
least a portion of the loss we incurred. The success of this pursuit is based on the assets the guarantor holds when we
obtain a judgment.
During 2013, we sought performance under guarantees on 11 business loans, seeking judgments in excess of
$2.8 million, and six real estate mortgage loans, seeking judgments in excess of $1.1 million. As of December 31, 2013,
we had realized recoveries of less than $0.1 million on one business loan, and had not received any recoveries on the
mortgage loans. In addition, during the year ended December 31, 2013, we realized recoveries of approximately $0.1
million on business loans and $0.1 million on real estate mortgage loans for which we sought judgments prior to 2013.
During 2012, we sought performance under guarantees on eight business loans, seeking judgments in excess of $1.9
million, and 12 real estate mortgage loans, seeking judgments in excess of $5.0 million. As of December 31, 2012, we
had realized recoveries of less than $0.1 million on mortgage loans, and had not received any recoveries on the business
loans. In addition, during the year ended December 31, 2012, we realized recoveries of approximately $0.2 million on
business loans and real estate mortgage loans for which we sought judgments prior to 2012.
During 2013 our net interest margin declined 28 basis points to 3.37% for the year ended December 31, 2013
from 3.65% for the comparable period in 2012. This decrease in the net interest margin resulted in a $4.8 million
decrease in net interest income to $145.7 million for the year ended December 31, 2013 from $150.4 million in 2012.
The decrease in the net interest margin for 2013 was primarily due to a decline in the yield of our interest-earning assets,
partially offset by a reduction in our funding costs. The decline in the yield of our interest earning assets was primarily
due to rates earned on new loans originated and securities purchased during 2013 being lower than the yield of the
existing portfolio. During 2013, the average balance of total loans and total securities increased $71.7 million and $117.0
million, respectively, to $3,258.7 million and $1,015.7 million, respectively. During 2013, the average balance of
borrowed funds increased by $185.6 million to $953.2 million compared to $767.6 million for 2012, while reducing the
cost of borrowed funds 59 basis points to 2.39% for the year ended December 31, 2013 from 2.98% in the comparable
period in 2012. The decrease in the cost of borrowed funds was partially offset by a $2.6 million prepayment penalty,
resulting from the prepayment of $69.9 million in FHLB-NY advances in 2013. The advances that were prepaid had an
average cost of 3.21%. At the same time the average balance of deposits decreased by $24.4 million to $2,978.8 million
for 2013 compared to $3,003.2 million for 2012. However, the average balance of lower costing core deposits increased
$228.8 million while the average balance of higher costing certificates of deposit decreased $257.5 million for the year
ended December 31, 2013 from the comparable period in 2012. Combining this shift to lower costing core deposits with
reductions in the rates we paid on all deposit types resulted in a 26 basis point reduction in our cost of total deposits to
1.08% for the year ended December 31, 2013 from 1.34% in the comparable period in 2012. As a result of these changes
to our funding mix, and a favorable interest rate environment, we were able to reduce our cost of funds 28 basis points to
1.40% for the year ended December 31, 2013 from 1.68% for the year ended December 31, 2012.
We are unable to predict the direction of future interest rate changes. Approximately 26% of our certificates of
deposit accounts and borrowings reprice or mature during the next year, which could result in a decrease in the cost of
our interest-bearing liabilities. Also, in a decreasing interest rate environment, mortgage loans and mortgage-backed
securities with higher rates tend to prepay, which could result in a reduction in the yield on our interest-earning assets.
Interest Rate Sensitivity Analysis
A financial institution’s exposure to the risks of changing interest rates may be analyzed, in part, by examining
the extent to which its assets and liabilities are “interest rate sensitive” and by monitoring the institution’s interest rate
sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or
reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities
maturing or repricing within that time period. A gap is considered positive when the amount of interest-earning assets
maturing or repricing exceeds the amount of interest-bearing liabilities maturing or repricing within the same period. A
gap is considered negative when the amount of interest-bearing liabilities maturing or repricing exceeds the amount of
interest-earning assets maturing or repricing within the same period. Accordingly, a positive gap may enhance net
interest income in a rising rate environment and reduce net interest income in a falling rate environment. Conversely, a
negative gap may enhance net interest income in a falling rate environment and reduce net interest income in a rising rate
environment.
67
The table below sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at
December 31, 2013 which are anticipated by the Company, based upon certain assumptions, to reprice or mature in each
of the future time periods shown. Except as stated below, the amount of assets and liabilities shown that reprice or
mature during a particular period was determined in accordance with the earlier of the term to repricing or the
contractual terms of the asset or liability. Prepayment assumptions for mortgage loans and mortgage-backed securities
are based on our experience and industry averages, which generally range from 6% to 40%, depending on the contractual
rate of interest and the underlying collateral. Money market accounts and savings accounts were assumed to have a
withdrawal or “run-off” rate of 8% and 16%, respectively, based on our experience. While management bases these
assumptions on actual prepayments and withdrawals experienced by us, there is no guarantee that these trends will
continue in the future.
Interest Rate Sensitivity Gap Analysis at December 31, 2013
Three
Months
And Less
More Than
Three
Months To
One Year
More Than
One Year
To Three
Years
More Than
Three Years
To Five
Years
More Than
Five Years
To Ten
Years
(Dollars in thousands)
More Than
Ten Years
Total
Interest-Earning Assets
Mortgage loans
Other loans
Short-term securities (1)
Securities available for sale:
Mortgage-backed securities
Other
Total interest-earning assets
Interest-Bearing Liabilities
Savings accounts
NOW accounts
Money market accounts
Certificate of deposit accounts
Mortgagors' escrow deposits
Borrowings
$
$
$
Total interest-bearing liabilities (2)
Interest rate sensitivity gap
Cumulative interest-rate sensitivity gap
Cumulative interest-rate sensitivity gap
as a percentage of total assets
Cumulative net interest-earning assets
as a percentage of interest-bearing
liabilities
$
295,345
120,469
23,748
$
629,952
91,748
-
$
1,111,280
96,110
-
$
$
744,403
40,797
-
$
226,673
33,866
-
$
20,799
11,566
-
35,230
98,488
573,280
10,600
-
3,998
124,960
-
59,070
198,628
374,652
374,652
67,816
3,850
793,366
31,800
-
11,994
334,056
-
69,300
447,150
346,216
720,868
$
$
$
$
$
$
169,077
-
1,376,467
84,800
-
31,984
476,272
-
565,794
1,158,850
217,617
938,485
137,397
14,758
937,355
84,800
-
31,984
159,990
-
317,958
594,732
342,623
1,281,108
$
$
$
$
$
$
336,726
8,775
606,040
53,003
-
79,960
25,677
-
-
158,640
447,400
1,728,508
9,910
135,763
178,038
-
1,416,774
39,987
-
32,798
-
1,489,559
(1,311,521)
416,987
$
$
$
$
$
7.94%
15.27%
19.88%
27.13%
36.61%
8.83%
288.62%
211.63%
152.00%
153.39%
167.57%
110.30%
3,028,452
394,556
23,748
-
756,156
261,634
4,464,546
265,003
1,416,774
199,907
1,120,955
32,798
1,012,122
4,047,559
416,987
(1) Consists of interest-earning deposits.
(2) Does not include non-interest bearing demand accounts totaling $197.3 million at December 31, 2013.
Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example,
although certain assets and liabilities may have similar estimated maturities or periods to repricing, they may react in
differing degrees to changes in market interest rates and may bear rates that differ in varying degrees from the rates that
would apply upon maturity and reinvestment or upon repricing. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind
changes in market rates. Additionally, certain assets, such as ARM loans, have features that restrict changes in interest rates
on a short-term basis and over the life of the asset. Further, in the event of a significant change in the level of interest
rates, prepayments on loans and mortgage-backed securities, and deposit withdrawal or “run-off” levels, would likely
deviate materially from those assumed in calculating the above table. In the event of an interest rate increase, some
borrowers may be unable to meet the increased payments on their adjustable-rate debt. The interest rate sensitivity
analysis assumes that the nature of the Company’s assets and liabilities remains static. Interest rates may have an effect
on customer preferences for deposits and loan products. Finally, the maturity and repricing characteristics of many assets
and liabilities as set forth in the above table are not governed by contract but rather by management’s best judgment
based on current market conditions and anticipated business strategies.
68
Interest Rate Risk
Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally
accepted in the United States of America, which requires the measurement of financial position and operating results in
terms of historical dollars without considering the changes in fair value of certain investments due to changes in interest
rates. Generally, the fair value of financial investments such as loans and securities fluctuates inversely with changes in
interest rates. As a result, increases in interest rates could result in decreases in the fair value of our interest-earning
assets which could adversely affect our results of operations if such assets were sold, or, in the case of securities
classified as available for sale, decreases in our stockholders’ equity if such securities were retained.
We manage the mix of interest-earning assets and interest-bearing liabilities on a continuous basis to maximize
return and adjust our exposure to interest rate risk. On a quarterly basis, management prepares the “Earnings and
Economic Exposure to Changes in Interest Rate” report for review by the Board of Directors, as summarized below. This
report quantifies the potential changes in net interest income and net portfolio value should interest rates go up or down
(shocked) 200 basis points, assuming the yield curves of the rate shocks will be parallel to each other. Net portfolio value
is defined as the market value of assets net of the market value of liabilities. The market value of assets and liabilities is
determined using a discounted cash flow calculation. The net portfolio value ratio is the ratio of the net portfolio value to
the market value of assets. All changes in income and value are measured as percentage changes from the projected net
interest income and net portfolio value at the base interest rate scenario. The base interest rate scenario assumes interest
rates at December 31, 2013. Various estimates regarding prepayment assumptions are made at each level of rate shock.
Actual results could differ significantly from these estimates. At December 31, 2013, we were within the guidelines
established by the Board of Directors for each interest rate level.
Change in Interest Rate
-200 basis points
-100 basis points
Base interest rate
+100 basis points
+200 basis points
Projected Percentage Change In
Net Interest Income
2013
2012
-3.29 %
0.28
(cid:650)
-4.84
-9.70
-2.14 %
-0.31
(cid:650)
-2.90
-6.18
Net Portfolio Value
2013
2012
12.34 %
7.42
(cid:650)
-11.52
-22.48
5.82 %
6.23
(cid:650)
-12.28
-24.35
Net Portfolio
Value Ratio
2013
2012
13.56 % 14.81 %
13.77
13.29
12.05
10.75
14.35
13.71
12.54
11.35
Analysis of Net Interest Income
Net interest income represents the difference between income on interest-earning assets and expense on interest-
bearing liabilities. Net interest income depends upon the relative amount of interest-earning assets and interest-bearing
liabilities and the interest rate earned or paid on them.
The following table sets forth certain information relating to our Consolidated Statements of Financial
Condition and Consolidated Statements of Income for the years ended December 31, 2013, 2012 and 2011, and reflects
the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown. Average
balances are derived from average daily balances. The yields include amortization of fees that are considered
adjustments to yields.
69
Average
Balance
2013
Interest
Yield/
Cost
For the year ended December 31,
2012
2011
Average
Balance
Interest
(Dollars in thousands)
Yield/
Cost
Average
Balance
Interest
Yield/
Cost
$
$
2,928,694
329,968
3,258,662
158,420
12,889
171,309
$
5.41 %
3.91
5.26
2,893,271
293,733
3,187,004
$
167,920
13,566
181,486
$
5.80 %
4.62
5.69
2,929,647
290,970
3,220,617
$
176,777
14,677
191,454
6.03 %
5.04
5.94
764,290
251,380
1,015,670
22,844
6,294
29,138
2.99
2.50
2.87
700,945
197,775
898,720
26,766
5,395
32,161
3.82
2.73
3.58
749,347
58,431
807,778
30,999
1,933
32,932
4.14
3.31
4.08
42,454
79
0.19
41,322
67
0.16
62,042
112
0.18
$
$
4,316,786
259,338
4,576,124
274,791
1,291,861
180,211
1,185,696
2,932,559
200,526
4.65
515
6,777
294
24,414
32,000
0.19
0.52
0.16
2.06
1.09
$
$
4,127,046
243,735
4,370,781
317,095
1,025,116
175,817
1,443,195
2,961,223
213,714
5.18
689
6,275
399
32,983
40,346
0.22
0.61
0.23
2.29
1.36
$
$
4,090,437
220,931
4,311,368
369,206
838,648
278,692
1,552,020
3,038,566
224,498
5.49
2,091
6,610
1,309
38,372
48,382
0.57
0.79
0.47
2.47
1.59
46,217
37
0.08
41,973
36
0.09
39,430
49
0.12
2,978,776
953,188
32,037
22,826
1.08
2.39
3,003,196
767,638
40,382
22,893
1.34
2.98
3,077,996
693,408
48,431
28,292
1.57
4.08
3,931,964
54,863
1.40
3,770,834
63,275
1.68
3,771,404
76,723
2.03
169,190
42,560
4,143,714
432,410
134,166
36,309
3,941,309
429,472
107,278
29,356
3,908,038
403,330
$
4,576,124
$
4,370,781
$
4,311,368
$
145,663
3.25 %
$
150,439
3.50 %
$
147,775
3.46 %
$
384,822
3.37 %
$
356,212
3.65 %
$
319,033
3.61 %
1.10 X
1.09 X
1.08 X
Interest-earning assets:
Mortgage loans, net (1)(2)
Other loans, net (1)(2)
Total loans, net
Mortgage-backed
securities
Other securities
Total securities
Interest-earning deposits
and federal funds sold
Total interest-earning
assets
Other assets
Total assets
Interest-bearing liabilities:
Deposits:
Savings accounts
NOW accounts
Money market accounts
Certificate of deposit
accounts
Total due to depositors
Mortgagors' escrow
accounts
Total interest-bearing
deposits
Borrowings
Total interest-bearing
liabilities
Non interest-bearing
demand deposits
Other liabilities
Total liabilities
Equity
Total liabilities and
equity
Net interest income /
net interest rate spread (3)
Net interest-earning assets /
net interest margin (4)
Ratio of interest-earning
assets to interest-bearing
liabilities
(1) Average balances include non-accrual loans.
(2)
Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of
approximately $3.6 million, $3.2 million and $1.3 million for the years ended December 31, 2013, 2012 and 2011, respectively.
Interest rate spread represents the difference between the average rate on interest-earning assets and the average cost of interest-bearing liabilities.
(3)
(4) Net interest margin represents net interest income before the provision for loan losses divided by average interest-earning assets.
70
Rate/Volume Analysis
The following table presents the impact of changes in interest rates and in the volume of interest-earning assets
and interest-bearing liabilities on the Company’s interest income and interest expense during the periods indicated.
Information is provided in each category with respect to (1) changes attributable to changes in volume (changes in
volume multiplied by the prior rate), (2) changes attributable to changes in rate (changes in rate multiplied by the prior
volume) and (3) the net change. The changes attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
Increase (Decrease) in Net Interest Income
Year Ended December 31, 2013
Compared to
Year Ended December 31, 2012
Due to
Volume
Rate
Year Ended December 31, 2012
Compared to
Year Ended December 31, 2011
Due to
Net
(Dollars in thousands)
Volume
Rate
Net
Interest-Earning Assets:
Mortgage loans, net
Other loans, net
Mortgage-backed securities
Other securities
Interest-earning deposits and
federal funds sold
Total interest-earning assets
Interest-Bearing Liabilities:
Deposits:
Savings accounts
NOW accounts
Money market accounts
Certificate of deposit accounts
Mortgagors' escrow accounts
Borrowings
Total interest-bearing liabilities
$
2,013
1,556
2,266
1,380
2
7,217
$
(11,513)
(2,233)
(6,188)
(481)
10
(20,405)
$
(9,500)
(677)
(3,922)
899
12
(13,188)
$
(2,175)
136
(1,927)
3,857
$
(6,682)
(1,247)
(2,306)
(395)
$
(8,857)
(1,111)
(4,233)
3,462
(34)
(143)
(11)
(10,641)
(45)
(10,784)
(86)
1,498
11
(5,483)
5
4,942
887
(88)
(996)
(116)
(3,086)
(4)
(5,009)
(9,299)
(174)
502
(105)
(8,569)
1
(67)
(8,412)
(262)
1,326
(382)
(2,642)
2
2,801
843
(1,140)
(1,661)
(528)
(2,747)
(15)
(8,200)
(14,291)
(1,402)
(335)
(910)
(5,389)
(13)
(5,399)
(13,448)
Net change in net interest income
$
6,330
$
(11,106)
$
(4,776)
$
(986)
$
3,650
$
2,664
Comparison of Operating Results for the Years Ended December 31, 2013 and 2012
General. Net income for the twelve months ended December 31, 2013 was $37.8 million, an increase of $3.4
million, or 10.0%, compared to $34.3 million for the twelve months ended December 31, 2012. Diluted earnings per
common share were $1.26 for the twelve months ended December 31, 2013, an increase of $0.13, or 11.5%, from $1.13
for the twelve months ended December 31, 2012.
Return on average equity was 8.73% for the twelve months ended December 31, 2013 compared to 7.99% for
the twelve months ended December 31, 2012. Return on average assets was 0.79% for both of the twelve months ended
December 31, 2013 and 2012.
Interest Income. Interest income decreased $13.2 million, or 6.17%, to $200.5 million for the year ended
December 31, 2013 from $213.7 million for the year ended December 31, 2012. The decrease in interest income was
primarily due to a 53 basis point reduction in the yield of interest-earning assets to 4.65% for the year ended December
31, 2013 from 5.18% for the year ended December 31, 2012, partially offset by a $189.7 million increase in the average
balance of interest-earning assets to $4,316.8 million for the year ended December 31, 2013 from $4,127.0 million for
the year ended December 31, 2012. The 53 basis point decline in the yield of interest-earning assets was primarily due to
a 43 basis point reduction in the yield on the loan portfolio to 5.26% for the twelve months ended December 31, 2013
from 5.69% for the twelve months ended December 31, 2012, combined with a 71 basis point decline in the yield on
total securities to 2.87% for the twelve months ended December 31, 2013 from 3.58% for the comparable prior year
period. In addition, the yield of interest-earning assets was negatively impacted by a $117.0 million increase in the
average balance of the lower yielding securities portfolio for the twelve months ended December 31, 2013. The 43 basis
point decrease in the yield on the loan portfolio was primarily due to a decline in the rates earned on new loan
71
originations and existing loans modified to lower rates. The 71 basis point decrease in the yield on the securities portfolio
was primarily due to the purchase of new securities at lower yields than the existing portfolio. The yield on the mortgage
loan portfolio decreased 39 basis points to 5.41% for the twelve months ended December 31, 2013 from 5.80% for the
twelve months ended December 31, 2012. The yield on the mortgage loan portfolio, excluding prepayment penalty
income on loans, decreased 42 basis points to 5.24% for the twelve months ended December 31, 2013 from 5.66% for
the twelve months ended December 31, 2012.
Interest Expense.
Interest expense decreased $8.4 million, or 13.29%, to $54.9 million for the year ended
December 31, 2013 from $63.3 million for the year ended December 31, 2012. The decrease in the cost of interest-
bearing liabilities is primarily attributable to a 28 basis point reduction in the cost of interest-bearing liabilities to 1.40%
for the year ended December 31, 2013 from 1.68% for the year ended December 31, 2012, partially offset by a $161.1
million increase in the average balance of interest-bearing liabilities to $3,932.0 million for the year ended December 31,
2013 from $3,770.8 million for the year ended December 31, 2012. The 28 basis point decrease in the cost of interest-
bearing liabilities was primarily attributable to the Bank reducing the rates it pays on its deposit products. The cost of
certificates of deposit, money market accounts, savings accounts and NOW accounts decreased 23 basis points, seven
basis points, three basis points and nine basis points, respectively, for the twelve months ended December 31, 2013 from
the comparable prior year period. This resulted in a decrease in the cost of due to depositors of 27 basis points to 1.09%
for the twelve months ended December 31, 2013 from 1.36% for the twelve months ended December 31, 2012. The
decrease in the cost of due to depositors was partially offset by a $2.6 million prepayment penalty recorded on
borrowings as a result of the Bank prepaying in 2013 $69.9 million of FHLB-NY advances scheduled to mature in 2014.
Including the prepayment penalty, borrowed funds decreased 59 basis points to 2.39% for the year ended December 31,
2013 from 2.98% in the comparable prior year period. The 59 basis point decrease in the cost of borrowed funds was
primarily due to maturing and new borrowings being replaced and obtained at lower rates.
Net Interest Income. Net interest income for the year ended December 31, 2013 totaled $145.7 million, a
decrease of $4.8 million, or 3.17%, from $150.4 million for 2012. The decrease in net interest income is attributed to a
decrease in the net interest spread of 25 basis points to 3.25% for the twelve months ended December 31, 2013 from
3.50% for the comparable prior year period, partially offset by an increase in the average balance of interest-earning
assets of $189.7 million, to $4,316.8 million for the year ended December 31, 2013. The yield on interest-earning assets
decreased 53 basis points to 4.65% for the year ended December 31, 2013 from 5.18% for the year ended December 31,
2012 while the cost of funds of decreased 28 basis points to 1.40% for the year ended December 31, 2013 from 1.68%
for the prior year period. The net interest margin decreased 28 basis points to 3.37% for the year ended December 31,
2013 from 3.65% for the year ended December 31, 2012. Excluding prepayment penalty income, the net interest margin
would have been 3.26% and 3.53% for the years ended December 31, 2013 and 2012, respectively.
Provision for Loan Losses. A provision for loan losses of $13.9 million was recorded for the twelve months
ended December 31, 2013, which was a decrease of $7.1 million from $21.0 million recorded in the twelve months
ended December 31, 2012. During the twelve months ended December 31, 2013, non-performing loans decreased $40.9
million to $49.0 million from $89.8 million at December 31, 2012. Net charge-offs for the twelve months ended
December 31, 2013 totaled $13.3 million, or 41 basis points of average loans. The current loan-to-value ratio for our
non-performing loans collateralized by real estate was 46.2% at December 31, 2013. When we have obtained properties
through foreclosure, we have been able to quickly sell the properties at amounts that approximate book value. We
anticipate that we will continue to see low loss content in our loan portfolio. The Bank continues to maintain
conservative underwriting standards. As a result of the analysis of the allowance for loans losses, management deemed it
necessary to record a $13.9 million provision for loan losses for the twelve months ended December 31, 2013.
Non-Interest Income. Non-interest income for the twelve months ended December 31, 2013 was $9.6 million,
an increase of $0.5 million, or 5.4%, from $9.1 million for the twelve months ended December 31, 2012. The increase in
non-interest income was primarily due to the $2.9 million gain from the sale of mortgage-backed securities during the
twelve months ended December 31, 2013. Non-interest income also improved due to a $0.6 million increase in BOLI
income. These increases were partially offset by a $2.6 million increase in net losses from fair value adjustments and a
$0.6 million increase in OTTI charges recorded on four private issue CMOs during the twelve months ended December
31, 2013 compared to the twelve months ended December 31, 2012. Additionally, during the twelve months ended
December 31, 2013, we sold five OTTI CMOs for total proceeds of $18.3 million realizing a loss on sale of $1.7 million.
In conjunction with this sale, we also sold $22.8 million in corporate securities realizing a gain on sale of $1.4 million
and sold a mortgage-backed security for $2.7 million realizing a gain on sale of $0.1 million.
Non-Interest Expense. Non-interest expense was $80.6 million for the twelve months ended December 31,
2013, a decrease of $1.8 million, or 2.1%, from $82.3 million for the twelve months ended December 31, 2012. The
72
decrease was primarily due to decreases of $1.0 million in FDIC insurance expense primarily due to a reduction in the
assessment rate and base as a result of the Merger, $0.7 million in OREO/foreclosure expense primarily due to a
reduction in non-performing assets, $0.8 million in net losses on sales of OREO and $0.9 million in professional services
primarily due to decreased legal expense. These decreases were partially offset by a $1.9 million increase in salaries and
benefits expense primarily due to annual salary increases and increased annual incentives for exceeding corporate
performance goals, partially offset by decrease in BOLI life insurance liability primarily due to an increase in the
discount rate used to calculate the liability. The efficiency ratio was 50.6% and 50.7% for the twelve months ended
December 31, 2013 and 2012, respectively.
Income Tax Provisions. Income tax expense for the year ended December 31, 2013 increased $1.1 million to
$23.0 million, compared to $21.8 million for the year ended December 31, 2012. The increase was primarily attributed to
the increase of $4.5 million in income before income taxes, partially offset by a decline in the effective tax rate.
The effective tax rate was 37.8% and 38.9% for the years ended December 31, 2013 and 2012, respectively.
The decline in the effective tax rate was primarily due to an increase in tax preference items in 2013 compared to 2012.
Comparison of Operating Results for the Years Ended December 31, 2012 and 2011
General. Net income for the year ended December 31, 2012 was $34.3 million, a decrease of $1.0 million, or
2.9%, compared to $35.3 million for the year ended December 31, 2011. Diluted earnings per common share were $1.13
for the year ended December 31, 2012, a decrease of $0.02, or 1.7%, from $1.15 for the year ended December 31, 2011.
Return on average equity was 7.99% for the year ended December 31, 2012 compared to 8.76% for the year
ended December 31, 2011. Return on average assets was 0.79% for the year ended December 31, 2012 compared to
0.82% for the year ended December 31, 2011.
Interest Income. Interest income decreased $10.8 million, or 4.80%, to $213.7 million for the year ended
December 31, 2012 from $224.5 million for the year ended December 31, 2011. The decrease in interest income was
primarily due to a 31 basis point reduction in the yield of interest-earning assets to 5.18% for the year ended December
31, 2012 from 5.49% for the year ended December 31, 2011, partially offset by a $30.6 million increase in the average
balance of interest-earning assets to $4,127.0 million for the year ended December 31, 2012 from $4,090.4 million for
the year ended December 31, 2011. The 31 basis point decline in the yield of interest-earning assets was primarily due to
a 25 basis point reduction in the yield on the loan portfolio to 5.69% for the twelve months ended December 31, 2012
from 5.94% for the twelve months ended December 31, 2011, combined with a 50 basis point decline in the yield on
total securities to 3.58% for the twelve months ended December 31, 2012 from 4.08% for the comparable prior year
period. In addition, the yield of interest-earning assets was negatively impacted by a $33.6 million decrease in the
average balance of the higher yielding loan portfolio for the twelve months ended December 31, 2012 and a $90.9
million increase in the average balance of the lower yielding securities portfolio for the twelve months ended December
31, 2012. These factors that reduced the yield were partially offset by a $20.7 million decrease in the average balance of
lower yielding interest-earning deposits to $41.3 million for the twelve months ended December 31, 2012 from $62.0
million for the comparable prior year period. The 25 basis point decrease in the yield on the loan portfolio was primarily
due to the current interest rate environment, as new loans were added at rates well below the portfolio average yield, and
higher yielding loans are prepaid. In addition, we experienced a significantly higher than average activity in loans
refinancing during 2012. The 50 basis point decrease in the yield on the securities portfolio was primarily due to the
purchase of new securities at lower yields than the existing portfolio. The yield on the mortgage loan portfolio decreased
23 basis points to 5.80% for the twelve months ended December 31, 2012 from 6.03% for the twelve months ended
December 31, 2011. The yield on the mortgage loan portfolio, excluding prepayment penalty income on loans,
decreased 29 basis points to 5.66% for the twelve months ended December 31, 2012 from 5.95% for the twelve months
ended December 31, 2011.
Interest Expense.
Interest expense decreased $13.4 million, or 17.53%, to $63.3 million for the year ended
December 31, 2012 from $76.7 million for the year ended December 31, 2011. The decrease in the cost of interest-
bearing liabilities is primarily attributable to a 35 basis point reduction in the cost of interest-bearing liabilities to 1.68%
for the year ended December 31, 2012 from 2.03% for the year ended December 31, 2011, combined with a $0.6 million
decrease in the average balance of interest-bearing liabilities to $3,770.8 million for the year ended December 31, 2012
from $3,771.4 million for the year ended December 31, 2011. The 35 basis point decrease in the cost of interest-bearing
liabilities was primarily attributable to the Bank reducing the rates it pays on its deposit products. The cost of certificates
of deposit, money market accounts, savings accounts and NOW accounts decreased 18 basis points, 24 basis points, 35
basis points and 18 basis points, respectively, for the twelve months ended December 31, 2012 from the comparable
prior year period. This resulted in a decrease in the cost of due to depositors of 23 basis points to 1.36% for the twelve
73
months ended December 31, 2012 from 1.59% for the twelve months ended December 31, 2011. The cost of borrowed
funds decreased 110 basis points to 2.98% for the twelve months ended December 31, 2012 from 4.08% for the twelve
months ended December 31, 2011 with the average balance increasing $74.2 million to $767.6 million for the twelve
months ended December 31, 2012 from $693.4 million for the twelve months ended December 31, 2011. The 110 basis
point decrease in the cost of borrowed funds was primarily due to maturing and new borrowings being replaced
and obtained at lower rates than the existing portfolio, and to a lesser extent adjustable rate borrowings resetting to
a lower rate during 2012.
Net Interest Income. Net interest income for the year ended December 31, 2012 totaled $150.4 million, an
increase of $2.7 million, or 1.80%, from $147.8 million for 2011. The increase in net interest income is attributed to an
increase in the average balance of interest-earning assets of $36.6 million, to $4,127.1 million for the year ended
December 31, 2012, combined with an increase in the net interest spread of four basis points to 3.50% for the year ended
December 31, 2012. The yield on interest-earning assets decreased 31 basis points to 5.18% for the year ended
December 31, 2012 from 5.49% for the year ended December 31, 2011. However, this was more than offset by a decline
in the cost of funds of 35 basis points to 1.68% for the year ended December 31, 2012 from 2.03% for the prior year. The
net interest margin improved four basis points to 3.65% for the year ended December 31, 2012 from 3.61% for the year
ended December 31, 2011. Excluding prepayment penalty income, the net interest margin would have been 3.53% and
3.55% for the years ended December 31, 2012 and 2011, respectively.
Provision for Loan Losses. A provision for loan losses of $21.0 million was recorded for the year ended
December 31, 2012, which was a decrease of $0.5 million from $21.5 million recorded in the year ended December 31,
2011. During the twelve months ended December 31, 2012, non-performing loans decreased $32.7 million to $84.1
million from $117.4 million at December 31, 2011. Net charge-offs for the twelve months ended December 31, 2012
totaled $20.2 million, or 64 basis points of average loans. The current loan to value ratio for our non-performing loans
collateralized by real estate was 58.6% at December 31, 2012. When we have obtained properties through foreclosure,
we have been able to quickly sell the properties at amounts that approximate book value. We anticipate that we will
continue to see low loss content in our loan portfolio. The Bank continues to maintain conservative underwriting
standards. However, given the level of non-performing loans, the current economic uncertainties, and the charge-offs
recorded in 2012, management, as a result of the analysis of the allowance for loans losses, deemed it necessary to record
a $21.0 million provision for loan losses for the twelve months ended December 31, 2012.
Non-Interest Income. Non-interest income for the twelve months ended December 31, 2012 was $9.1 million, a
decrease of $1.2 million, or 11.8%, from $10.3 million for the twelve months ended December 31, 2011. The decrease
in non-interest income was primarily due to a $1.9 million decrease in net gains recorded from fair value adjustments,
partially offset by a decrease of $0.8 million in other-than-temporary impairment (“OTTI”) charges recorded during the
twelve months ended December 31, 2012 compared to the twelve months ended December 31, 2011.
Non-Interest Expense. Non-interest expense was $82.3 million for the twelve months ended December 31,
2012, an increase of $4.6 million, or 5.9%, from $77.7 million for the twelve months ended December 31, 2011. The
increase was primarily due to the growth of the Bank over the past year, which included the opening of a new branch in
January 2012, an increase in stock based compensation expense, and an increase in other real estate owned/foreclosure
expense. Salaries and benefits increased $4.2 million for the twelve months ended December 31, 2012 compared to the
twelve months ended December 31, 2011 due to a new branch, employee salary increases as of January 1, 2012, and
increases in stock based compensation, payroll taxes, and employee medical and retirement costs, while professional
services and data processing decreased $0.6 million and $0.4 million, respectively. In addition, other real estate
owned/foreclosure expense and other operating expense for the twelve months ended December 31, 2012 increased $0.5
million and $1.0 million, respectively, compared to the twelve months ended December 31, 2011. The efficiency ratio
was 50.7% for the twelve months ended December 31, 2012 compared to 49.2% for the twelve months ended December
31, 2011.
Income Tax Provisions. Income tax expense for the year ended December 31, 2012 decreased $1.6 million to
$21.8 million, compared to $23.5 million for the year ended December 31, 2011. The decrease was primarily attributed
to the decrease of $2.6 million in income before income taxes.
The effective tax rate was 38.9% and 39.9% for the years ended December 31, 2012 and 2011, respectively.
The decline in the effective tax rate was primarily due to an increase in tax preference items in 2012 compared to 2011.
74
Liquidity, Regulatory Capital and Capital Resources
Our primary sources of funds are deposits, borrowings, principal and interest payments on loans, mortgage-
backed and other securities, and proceeds from sales of securities and loans. Deposit flows and mortgage prepayments,
however, are greatly influenced by general interest rates, economic conditions and competition. At December 31, 2013,
the Bank had an approved overnight line of credit of $100.0 million with the FHLB-NY. In total, as of December 31,
2013, the Bank was able to borrow up to $1,895.0 million from the FHLB-NY in Federal Home Loan advances, letters
of credit and overnight lines of credit. As of December 31, 2013, the Bank had $1,345.1 million outstanding in combined
balances of FHLB-NY advances and letters of credit. In addition, Flushing Financial Corporation has junior subordinated
debentures with a face amount of $61.9 million and a carrying amount of $29.6 million (which are included in Borrowed
Funds) and the Bank had $155.3 million in repurchase agreements to fund lending and investment opportunities. (See
Note 9 of Notes to the Consolidated Financial Statements in Item 8 of this Annual Report.) Management believes its
available sources of funds are sufficient to fund current operations.
Our most liquid assets are cash and cash equivalents, which include cash and due from banks, overnight
interest-earning deposits and federal funds sold with original maturities of 90 days or less. The level of these assets is
dependent on our operating, financing, lending and investing activities during any given period. At December 31, 2013,
cash and cash equivalents totaled $33.5 million, a decrease of $6.9 million from December 31, 2012. We also held
marketable securities available for sale with a market value of $1,017.8 million at December 31, 2013.
At December 31, 2013, we had commitments to extend credit (principally real estate mortgage loans) of $36.9
million and open lines of credit for borrowers (principally home equity loan lines of credit and business lines of credit) of
$153.9 million. Since generally all of the loan commitments are expected to be drawn upon, the total loan commitments
approximate future cash requirements, whereas the amounts of lines of credit may not be indicative of our future cash
requirements. The loan commitments generally expire in 90 days, while construction loan lines of credit mature within
18 months and home equity loan lines of credit mature within 10 years. We use the same credit policies in making
commitments and conditional obligations as we do for on-balance-sheet instruments.
Our total interest expense and operating expense in 2013 were $54.9 million and $80.6 million, respectively.
We maintain three postretirement defined benefit plans for our employees: a noncontributory defined benefit
pension plan which was frozen as of September 30, 2006, a contributory medical plan, and a noncontributory life
insurance plan. The life insurance plan was amended to discontinue providing life insurance benefits to future retirees
after January 1, 2010 and the medical plan was frozen as of January 1, 2011. We also maintain a noncontributory defined
benefit plan for certain of our non-employee directors, which was frozen as of January 1, 2004. The employee pension
plan is the only plan that we have funded. During 2013, we made contributions to the employee pension plan totaling
$0.8 million, and incurred cash expenditures of $0.1 million for the medical and life insurance plans and $0.1 million for
the non-employee director plan. We expect to pay similar amounts for these plans in 2013, except for the employee
pension plan to which we do not expect to make a contribution in 2013. (See Note 12 of Notes to Consolidated Financial
Statements in Item 8 of this Annual Report.)
The amounts reported in our financial statements are obtained from reports prepared by independent actuaries,
and are based on significant assumptions. The most significant assumption is the discount rate used to determine the
accumulated postretirement benefit obligation (“APBO”) for these plans. The APBO is the present value of projected
benefits that employees and retirees have earned to date. The discount rate is a single rate at which the liabilities of the
plans are discounted into today’s dollars and could be effectively settled or eliminated. The discount rate used is based
on the Citigroup Pension Liability Index, and reflects a rate that could be earned on bonds over a similar period that we
anticipate the plans’ liabilities will be paid. An increase in the discount rate would reduce the APBO, while a reduction
in the discount rate would increase the APBO. During the past several years, when interest rates have been at historically
low levels, the discount rate used for our plans has declined from 7.25% for 2001 to 3.75% for 2012. This decline in the
discount rate has resulted in an increase in our APBO. However, in 2013 the discount rate increased to 4.60% which
resulted in a decrease in the APBO from 2012.
The Company’s actuaries use several other assumptions that could have a significant impact on our APBO and
periodic expense for these plans. These assumptions include, but are not limited to, expected rate of return on plan assets,
future increases in medical and life insurance premiums, turnover rates of employees, and life expectancy. The
accounting standards for postretirement plans involve mechanisms that serve to limit the volatility of earnings by
allowing changes in the value of plan assets and benefit obligations to be amortized over time when actual results differ
from the assumptions used, there are changes in the assumptions used, or there are plan amendments. At December 31,
2013, our employee pension plan and medical and life insurance plan have unrecognized losses of $5.9 million and $0.2
million, respectively. The non-employee director plan has a $0.5 million unrecognized gain, due to experience different
from what had been estimated and changes in actuarial assumptions. The employee pension plan’s unrecognized loss is
75
primarily attributed to the reduction in the discount rate over the past several years and the net decline in the market
value of the pension plan’s investments. The medical and life insurance plans’ unrecognized loss is attributed to the
reduction in the discount rate over the past several years. In addition, the non-employee director pension plan has an
unrecognized past service liability of $0.2 million due to plan amendments in prior years and the medical and life
insurance plan have a $0.7 million past service credit due to plan amendments. The net after tax effect of the
unrecognized gains and losses associated with these plans has been recorded in accumulated other comprehensive
income in stockholders’ equity, resulting in a reduction of stockholders’ equity of $2.9 million as of December 31, 2013.
The change in the discount rate and the reduction in medical premiums are the only significant changes made to
the assumptions used for these plans for each of three years ended December 31, 2013. During the year ended December
31, 2011 the actual return on the employee pension plan assets was approximately half of the assumed return used to
determine the periodic pension expense for that year. During the year ended December 31, 2012 the actual return on the
employee pension plan assets approximated the assumed return used to determine the periodic pension expense for that
year. During the year ended December 31, 2013,
the actual return on the employee pension plan assets was
approximately 2.5 times the assumed return used to determine the periodic pension expense for that year.
The market value of the assets of our employee pension plan is $20.5 million at December 31, 2013, which is
$0.8 million more than the projected benefit obligation. We do not anticipate a change in the market value of these assets
which would have a significant effect on liquidity, capital resources, or results of operations.
During 2013, funds provided by the Company's operating activities amounted to $74.4 million. These funds,
together with $244.6 million provided by financing activities and $40.4 million available at the beginning of 2013, were
utilized to fund net investing activities of $326.0 million. The Company's primary business objective is the origination
and purchase of multi-family residential properties, one-to-four family (including mixed-use properties) and commercial
real estate mortgage loans, and commercial, business and SBA loans. During the year ended December 31, 2013, the net
total of loan originations and purchases less loan repayments and sales was $211.1 million. During the year ended
December 31, 2013, the Company also funded $458.6 million in purchases of securities available for sale. Funds were
primarily provided by increases of $216.3 million in customer deposits and $343.4 million in proceeds from maturities,
sales, calls and prepayments of securities available for sale. The Company also used funds of $15.6 million for dividend
payments and $13.2 million for repurchases of the Company’s common stock during the year ended December 31, 2013.
At the time of the Savings Bank’s conversion from a federally chartered mutual savings bank to a federally
chartered stock savings bank, the Savings Bank was required by its primary regulator to establish a liquidation account
which is reduced as and to the extent that eligible account holders reduce their qualifying deposits. Upon completion of
the Merger, the liquidation account was assumed by the Bank. The balance of the liquidation account at December 31,
2013 was $1.2 million. In the unlikely event of a complete liquidation of the Bank, each eligible account holder will be
entitled to receive a distribution from the liquidation account. The Bank is not permitted to declare or pay a dividend or
to repurchase any of its capital stock if the effect would be to cause the Bank’s regulatory capital to be reduced below the
amount required for the liquidation account but approval of the NYDFS Superintendent is required if the total of all
dividends declared by the Bank in a calendar year would exceed the total of its net profits for that year combined with its
retained net profits for the preceding two years less prior dividends paid. On July 21, 2011, as a result of the Dodd-
Frank Act, the Bank’s primary regulator became the OCC and Flushing Financial Corporation’s primary regulator
became the Federal Reserve Board of Governors (“Federal Reserve”). Prior to July 21, 2011, unlike the Savings Bank,
Flushing Financial Corporation was not subject to regulatory restrictions on the declaration or payment of dividends to
its stockholders, although the source of such dividends could depend upon dividend payments from the Savings Bank.
However, Flushing Financial Corporation was subject, to the requirements of Delaware law, which generally limit
dividends to an amount equal to the excess of its net assets (the amount by which total assets exceed total liabilities) over
its stated capital or, if there is no such excess, to its net profits for the current and/or immediately preceding fiscal year.
With the Federal Reserve becoming Flushing Financial Corporation’s primary regulator, Flushing Financial Corporation
became subject to the same regulatory restrictions on the declaration of dividends as the Savings Bank.
Regulatory Capital Position. Under applicable regulatory capital regulations, the Bank is required to comply
with each of three separate capital adequacy standards: leverage capital, Tier I risk-based capital and total risk-based
capital. Such classifications are used by the FDIC and other bank regulatory agencies to determine matters ranging from
each institution’s quarterly FDIC deposit insurance premium assessments, to approvals of applications authorizing
institutions to grow their asset size or otherwise expand business activities. At December 31, 2013 and 2012, the Bank
exceeded its three regulatory capital requirements. (See Note 14 of Notes to Consolidated Financial Statements included
in Item 8 of this Annual Report.)
76
Critical Accounting Policies
The Company’s accounting policies are integral to understanding the results of operations and statement of
financial condition. These policies are described in the Notes to Consolidated Financial Statements. Several of these
policies require management’s judgment to determine the value of the Company’s assets and liabilities. The Company
has established detailed written policies and control procedures to ensure consistent application of these policies. The
Company has identified four accounting policies that require significant management valuation judgment: the allowance
for loan losses, fair value of financial instruments, goodwill impairment and income taxes.
Allowance for Loan Losses. An allowance for loan losses is provided to absorb probable estimated losses
inherent in the loan portfolio. Management reviews the adequacy of the allowance for loan losses by reviewing all
impaired loans on an individual basis. The remaining portfolio is evaluated based on the Company's historical loss
experience, recent trends in losses, collection policies and collection experience, trends in the volume of non-performing
loans, changes in the composition and volume of the gross loan portfolio, and local and national economic conditions.
Judgment is required to determine how many years of historical loss experience are to be included when reviewing
historical loss experience. A full credit cycle must be used, or loss estimates may be inaccurate. This evaluation is
inherently subjective, as it requires estimates that are susceptible to significant revisions as more information becomes
available.
Notwithstanding the judgment required in assessing the components of the allowance for loan losses, the
Company believes that the allowance for loan losses is adequate to cover losses inherent in the loan portfolio. The policy
has been applied on a consistent basis for all periods presented in the Consolidated Financial Statements.
Fair Value of Financial Instruments. The Company carries certain financial assets and financial liabilities at fair
value in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification
(“ASC”) Topic 825 “Financial Instruments” and values those financial assets and financial liabilities in accordance with
ASC Topic 820 “Fair Value Measurements and Disclosures.” ASC Topic 820 defines fair value as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date, establishes a framework for measuring fair value, and expands disclosures about fair value
measurements. ASC Topic 825 permits entities to choose to measure many financial instruments and certain other items
at fair value. Management selected the fair value option for certain investment securities, primarily mortgage-backed
securities, and certain borrowings. Changes in the fair value of financial instruments for which the fair value election is
made are recorded in the Consolidated Statements of Income. At December 31, 2013, financial assets and financial
liabilities with fair values of $37.3 million and $29.6 million, respectively, are carried at fair value under the fair value
option.
The securities portfolio also consists of mortgage-backed and other securities for which the fair value election
was not selected. These securities are classified as available for sale and are carried at fair value in the Consolidated
Statements of Financial Condition, with changes in fair value recorded in Accumulated Other Comprehensive Income. If
any decline in fair value for these securities is deemed other-than-temporary, the security is written down to a new cost
basis with the resulting loss recorded in the Consolidated Statements of Income. During 2013 and 2012, we recorded
other-than-temporary impairment charges of $1.4 million and $0.8 million, respectively, for certain private issue
collateralized mortgage obligations.
Financial assets and financial liabilities reported at fair value are required to be measured based on the
following alternatives: (1) quoted prices in active markets for identical financial instruments (Level 1), (2) significant
other observable inputs (Level 2), or (3) significant unobservable inputs (Level 3). Judgment is required in selecting the
appropriate level to be used to determine fair value. The majority of financial assets and financial liabilities for which the
fair value election was made, and the majority of investments classified as Available for Sale, were measured using
Level 2 inputs, which require judgment to determine the fair value. The trust preferred securities held in the investment
portfolio, and the Company’s junior subordinated debentures, were measured using Level 3 inputs due to the inactive
market for these securities. The private label collateralized mortgage obligations for which other-than-temporary
impairment charges were recorded in 2013 and 2012 were valued using a Level 3 input.
Goodwill Impairment. Goodwill is presumed to have an indefinite life and is tested for impairment, rather than
amortized, on at least an annual basis. For the purpose of goodwill impairment testing, management has concluded that
the Company has one reporting unit. If the estimated fair value of the reporting unit exceeds its carrying amount, there is
no impairment of goodwill. However, if the fair value of the reporting unit is less than its carrying amount, further
evaluation is required to determine if a write down of goodwill is required.
77
Quoted market prices in active markets are the best evidence of fair value and are to be used as the basis for
measurement, when available. Other acceptable valuation methods include an asset approach, which determines a fair
value based upon the value of assets net of liabilities, an income approach, which determines fair value using one or
more methods that convert anticipated economic benefits into a present single amount, and a market approach, which
determines a fair value based on the similar businesses that have been sold.
The Company conducts its annual impairment testing of goodwill as of December 31. The impairment testing as
of December 31, 2013 and 2012 did not show an impairment of goodwill based on the fair value of the Company.
Income Taxes. The Company estimates its income taxes payable based on the amounts it expects to owe to the
various taxing authorizes (i.e. federal, state and local). In estimating income taxes, management assesses the relative
merits and risks of the tax treatment of transactions, taking into account statutory, judicial and regulatory guidance in the
context of the Company’s tax position. Management also relies on tax opinions, recent audits, and historical experience.
The Company also recognizes deferred tax assets and liabilities for the future tax consequences of differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A
valuation allowance is required for deferred tax assets that the Company estimates are more likely than not to be
unrealizable, based on evidence available at the time the estimate is made. These estimates can be affected by changes to
tax laws, statutory tax rates, and future income levels.
Contractual Obligations
Payments Due By Period
$
Total
982,622
3,232,780
191,111
-
29,886
11,122
8,402
12,479
Less Than
1 Year
$
255,300
2,570,841
191,111
-
3,717
5,112
1 - 3
Years
(In thousands)
537,794
$
476,265
-
-
6,461
5,808
468
861
1,016
1,722
$
3 - 5
Years
159,958
159,995
-
-
6,090
202
1,052
1,722
$
More
Than
5 Years
29,570
25,679
-
-
13,618
-
5,866
8,174
Borrowings
Deposits
Loan commitments
Capital lease obligations
Operating lease obligations
Purchase obligations
Pension and other postretirement
benefits
Deferred compensation plans
Total
$
4,468,402
$
3,027,410
$
1,029,066
$
329,019
$
82,907
We have significant obligations that arise in the normal course of business. We finance our assets with deposits
and borrowings. We also use borrowings to manage our interest-rate risk. We have the means to refinance these
borrowings as they mature through financing arrangements with the FHLB-NY and our ability to arrange repurchase
agreements with broker-dealers and the FHLB-NY. (See Notes 8 and 9 of Notes to Consolidated Financial Statements in
Item 8 of this Annual Report.)
We focus our balance sheet growth on the origination of mortgage loans. At December 31, 2013, we had
commitments to extend credit and lines of credit of $191.1 million for mortgage and other loans. These loans will be
funded through principal and interest payments received on existing mortgage loans and mortgage-backed securities,
growth in customer deposits, and, when necessary, additional borrowings. (See Note 15 of Notes to Consolidated
Financial Statements in Item 8 of this Annual Report.)
At December 31, 2013, the Bank had seventeen branches, eleven of which are leased. The Bank leases its
branch locations primarily when it is not the sole tenant. Whether the Bank will purchase its future branch locations will
depend in part on the availability of suitable locations and the availability of properties. In addition, we lease our
executive offices. We currently outsource our data processing, loan servicing and check processing functions. We
believe that this is the most cost effective method for obtaining these services. These arrangements are usually volume
dependent and have varying terms. The contracts for these services usually include annual increases based on the
increase in the consumer price index. The amounts shown above for purchase obligations represent the current term and
volume of activity of these contracts. We expect to renew these contracts as they expire.
78
The amounts shown for pension and other postretirement benefits reflect our directors’ pension plan and the
supplemental retirement benefits of our president, and amounts due under our plan for medical and life insurance
benefits for retired employees. The amount shown in the “Less Than 1 Year” column represents our current estimate for
these benefits, some of which are based on information supplied by actuaries. The amounts shown in columns reflecting
periods over one year represent our current estimate based on the past year’s actual disbursements and information
supplied by actuaries. The amounts do not include an increase for possible future retirees or increases in health plan
costs. The amount shown in the “More Than 5 Years” column represents the amount required to increase the total
amount to the projected benefit obligation of the directors’ plan and the medical and life insurance benefit plans, since
these are unfunded plans. The employee pension plan is not included in the contractual obligation table due to the
employee pension plan being fully funded at December 31, 2013. (See Note 12 of Notes to Consolidated Financial
Statements in Item 8 of this Annual Report.)
We currently provide a non-qualified deferred compensation plan for officers who have achieved the level of at
least senior vice president (certain officers who had achieved the level of at least vice president are included in this plan
under previously existing guidelines). In addition to the amounts deferred by the officers, we match 50% of their
contributions, generally up to a maximum of 5% of the officer’s salary. These plans generally require the deferred
balance to be credited with earnings at a rate earned by certain mutual funds. Through December 31, 2011, employees
could not receive a distribution from these plans until their employment is terminated. The amounts shown in the
columns for less than five years represent the estimate of the amounts we will contribute to a rabbi trust with respect to
matching contributions under these plans, and the amounts to be paid from the rabbi trust to two executives who have
retired. The amount shown in the “More Than 5 Years” column represents the current accrued liability for these plans,
adjusted for the activity in the columns for less than five years. This expense is provided in the Consolidated Statements
of Income, and the liability has been provided in the Consolidated Statements of Financial Condition.
New Authoritative Accounting Pronouncements
In April 2011, the FASB issued ASU No. 2011-03, which amends the authoritative accounting guidance under
ASC Topic 860 “Transfers and Servicing.” The amendments in this update remove from the assessment of effective
control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on
substantially the agreed terms, even in the event of default by the transferee and (2) the collateral maintenance
implementation guidance related to that criterion. The amendments in this update are effective for the first interim or
annual period beginning on or after December 15, 2011 and should be applied prospectively to transactions or
modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. Adoption
of this update did not have a material effect on the Company’s consolidated results of operations or financial condition.
In May 2011, the FASB issued ASU No. 2011-04, which amends the authoritative accounting guidance under
ASC Topic 820 “Fair Value Measurement.” The amendments in this update clarify how to measure and disclose fair
value under ASC Topic 820. The amendments in this update are effective for the first interim or annual period beginning
on or after December 15, 2011 and should be applied prospectively to transactions or modifications of existing
transactions that occur on or after the effective date. Early adoption is not permitted. Adoption of this update did not
have a material effect on the Company’s consolidated results of operations or financial condition.
In June 2011, the FASB issued ASU No. 2011-05, which amends the authoritative accounting guidance under
ASC Topic 220 “Comprehensive Income.” The amendments eliminate the option to present components of other
comprehensive income in the statement of stockholders’ equity. Instead, the new guidance requires entities to present all
nonowner changes in stockholders’ equity either as a single continuous statement of comprehensive income or as two
separate but consecutive statements. The amendments in this update are effective for the first interim or annual period
beginning on or after December 15, 2011 and must be applied retrospectively. Early adoption was permitted. Adoption
of this update did not have a material effect on the Company’s consolidated results of operations or financial condition.
See the Consolidated Statements of Comprehensive Income.
In September 2011, the FASB issued ASU No. 2011-08, which amends the authoritative accounting guidance
under ASC Topic 350 “Intangibles – Goodwill and Other.” The amendments in the update permit an entity to first
assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than
its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test
described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent.
The amendments in this update are effective for annual and interim goodwill impairment tests performed for fiscal years
beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment
tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or
interim period have not yet been issued. Adoption of this update did not have a material effect on the Company’s
consolidated results of operations or financial condition.
79
In February 2013, the FASB issued ASU No. 2013-02, which amends the authoritative accounting guidance under ASC
Topic 220 “Comprehensive Income.” The amendments do not change the current requirements for reporting net income
or other comprehensive income in financial statements. However, the amendments require an entity to provide
information about the amounts reclassified out of accumulated other comprehensive income by component. In addition,
an entity is required to present, either on the face of the statement where net income is presented or in the notes,
significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net
income but only if the amount reclassified is required under generally accepted accounting principles in the United States
of America (“GAAP”) to be reclassified to net income in its entirety in the same reporting period. For other amounts that
are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to
other disclosures required under GAAP that provide additional detail about those amounts. The amendments in this
update are effective prospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted.
Adoption of this update did not have a material effect on the Company’s consolidated results of operations or financial
condition. (See Note 13 of Notes to Consolidated Financial Statements “Stockholders’ Equity”.)
In January 2014, the FASB issued ASU 2014-04 to clarify that when an in substance repossession
or foreclosure occurs, a creditor is considered to have received physical possession of residential real estate
property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real
estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate
property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal
agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed
residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans
collateralized by residential real estate property that are in the process of foreclosure according to local requirements of
the applicable jurisdiction. ASU 2014- 04 is effective for annual reporting periods beginning after December 15,
2014. Adoption of this update is not expected to have a material effect on the Company’s consolidated results of
operations or financial condition.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
This information is contained in the section captioned “Interest Rate Risk” on page 69 and in Notes 15 and 16
of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report.
80
Item 8.
Financial Statements and Supplementary Data.
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
Assets
Cash and due from banks
Securities available for sale, at fair value:
Mortgage-backed securities (including assets pledged of $556,520 and
$679,285 at December 31, 2013 and 2012, respectively; $7,119 and
$24,911 at fair value pursuant to the fair value option at
December 31, 2013 and 2012, respectively)
Other securities (including assets pledged of $50,354 at December 31, 2013;
$30,163 and $29,577 at fair value pursuant to the fair value option at
December 31, 2013 and 2012, respectively)
Loans held for sale
Loans, net of fees and costs
Less: Allowance for loan losses
Net loans
Interest and dividends receivable
Bank premises and equipment, net
Federal Home Loan Bank of New York stock, at cost
Bank owned life insurance
Goodwill
Core deposit intangible, net
Other assets
Total assets
Liabilities
Due to depositors:
Non-interest bearing
Interest-bearing
Mortgagors' escrow deposits
Borrowed funds ($29,570 and $23,922 at fair value pursuant to the
fair value option at December 31, 2013 and 2012, respectively)
Securities sold under agreements to repurchase
Other liabilities
Total liabilities
Commitments and contingencies (Note 14)
December 31,
2013
December 31,
2012
(Dollars in thousands, except per share data)
$
33,485
$
40,425
756,156
720,113
261,634
425
3,434,178
(31,776)
3,402,402
17,370
20,356
46,025
109,606
16,127
-
57,915
4,721,501
197,343
3,002,639
32,798
856,822
155,300
44,067
4,288,969
$
$
229,453
5,313
3,234,121
(31,104)
3,203,017
17,917
22,500
42,337
106,244
16,127
468
47,502
4,451,416
155,789
2,826,844
32,560
763,105
185,300
45,453
4,009,051
$
$
Stockholders' Equity
Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued)
Common stock ($0.01 par value; 100,000,000 shares authorized; 31,530,595 shares
issued at December 31, 2013 and 2012; 30,123,252 and 30,743,329 shares
outstanding at December 31, 2013 and 2012, respectively)
Additional paid-in capital
Treasury stock, at average cost (1,407,343 shares and 787,266 at December 31, 2013
and 2012, respectively)
Retained earnings
Accumulated other comprehensive (loss) income, net of taxes
Total stockholders' equity
-
-
315
201,902
(22,053)
263,743
(11,375)
432,532
315
198,314
(10,257)
241,856
12,137
442,365
Total liabilities and stockholders' equity
$
4,721,501
$
4,451,416
The accompanying notes are an integral part of these consolidated financial statements.
81
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
2013
For the years ended December 31,
2012
(In thousands, except per share data)
2011
Interest and dividend income
Interest and fees on loans
Interest and dividends on securities:
Interest
Dividends
Other interest income
Total interest and dividend income
Interest expense
Deposits
Other interest expense
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income
Other-than-temporary impairment ("OTTI") charge
Less: Non-credit portion of OTTI charge recorded in
Other Comprehensive Income, before taxes
Net OTTI charge recognized in earnings
Banking services fee income
Net (loss) gain on sale of loans held for sale
Net gain on sale of loans
Net gain on sale of securities
Net (loss) gain from fair value adjustments
Federal Home Loan Bank of New York stock dividends
Bank owned life insurance
Other income
Total non-interest income
Non-interest expense
Salaries and employee benefits
Occupancy and equipment
Professional services
FDIC deposit insurance
Data processing
Depreciation and amortization of premises and equipment
Other real estate owned / foreclosure expense
Other operating expenses
Total non-interest expense
Income before income taxes
Provision for income taxes
Federal
State and local
Total provision for income taxes
Net income
Basic earnings per common share
Diluted earnings per common share
$
171,309
$
181,486
$
191,454
28,310
828
79
200,526
32,037
22,826
54,863
145,663
13,935
131,728
(1,419)
-
(1,419)
3,687
(108)
284
3,021
(2,521)
1,663
3,363
1,586
9,556
44,397
7,646
5,210
3,206
4,238
2,953
2,292
10,634
80,576
60,708
17,344
5,612
22,956
37,752
1.26
1.26
$
$
$
31,306
855
67
213,714
40,382
22,893
63,275
150,439
21,000
129,439
(3,138)
2,362
(776)
4,007
(9)
31
47
55
1,507
2,790
1,413
9,065
42,503
7,807
6,108
4,186
4,101
3,207
2,964
11,450
82,326
56,178
16,740
5,107
21,847
34,331
1.13
1.13
$
$
$
32,121
811
112
224,498
48,431
28,292
76,723
147,775
21,500
126,275
(9,365)
7,787
(1,578)
3,640
343
168
-
1,960
1,502
2,769
1,477
10,281
38,262
7,803
6,697
4,378
4,458
3,185
2,471
10,485
77,739
58,817
17,749
5,720
23,469
35,348
1.15
1.15
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
82
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
2013
For the years ended December 31,
2012
(Dollars in thousands)
2011
Comprehensive Income
Net income
Other comprehensive income, net of tax
Unrecognized actuarial gains (losses)
Amortization of actuarial losses
Amortization of prior service credit
OTTI charges included in income
Reclassification adjustment for gains included in income
Unrealized (losses) gains on securities
Comprehensive income
$
37,752
$
34,331
$
35,348
3,261
696
(26)
798
(1,700)
(26,541)
14,240
$
(479)
587
(26)
437
(26)
6,831
41,655
$
(2,505)
311
(25)
886
-
9,890
43,905
$
The accompanying notes are an integral part of these consolidated financial statements.
83
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
Common Stock
Balance, beginning of year
Shares issued upon the exercise of stock options (155,061
common shares for the year ended December 31, 2011)
Shares issued upon vesting of restricted stock unit awards (119,600
common shares for the year ended December 31, 2011)
Balance, end of year
Additional Paid-In Capital
Balance, beginning of year
Award of common shares released from Employee Benefit Trust
(143,941, 157,922 and 144,312 common shares for the years ended
December 31, 2013, 2012 and 2011, respectively)
Shares issued upon vesting of restricted stock unit awards
(120,114, 113,272 and 127,653 common shares for the years ended
December 31, 2013, 2012 and 2011, respectively)
Options exercised (463,245, 125,405 and 155,061 common shares
for the years ended December 31, 2013, 2012 and 2011, respectively)
Stock-based compensation activity, net
Stock-based income tax (provision) benefit
Balance, end of year
Treasury Stock
Balance, beginning of year
Purchases of common shares outstanding (836,092, 352,000 and 624,088
common shares for the years ended December 31, 2013, 2012 and
2011, respectively)
Issuance upon exercise of stock options (463,245, 150,225 and 23,249
common shares for the years ended December 31, 2013, 2012
and 2011, respectively)
Repurchase of shares to satisfy tax obligations (61,710, 40,148
and 29,838 common shares for the years ended December 31, 2013,
2012 and 2011, respectively)
Shares issued upon vesting of restricted stock unit awards (180,997,
146,149 and 8,053 common shares for the years ended December 31,
2013, 2012 and 2011, respectively)
Purchase of common shares to fund options exercised (366,517, 65,074
and 3,794 common shares for the years ended December 31, 2013
2012 and 2011, respectively)
Balance, end of year
For the years ended December 31,
2013
2012
2011
(Dollars in thousands, except per share data)
$
315
$
315
$
313
-
-
315
-
-
315
1
1
315
198,314
195,628
189,348
1,652
1,480
1,541
161
317
1,668
1,451
(119)
443
201,902
164
1,028
(303)
198,314
1,825
954
292
195,628
(10,257)
(7,355)
-
(13,152)
(5,019)
(7,316)
6,763
1,818
326
(999)
(532)
(406)
2,406
1,737
95
(6,814)
(22,053)
(906)
(10,257)
(54)
(7,355)
Continued
84
The accompanying notes are an integral part of these consolidated financial statements.
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity (continued)
Retained Earnings
Balance, beginning of year
Net income
Stock options exercised (65,470, 24,820, and 23,129 common
shares for the years ended December 31, 2013, 2012 and 2011,
respectively)
Shares issued upon vesting of restricted stock unit awards (60,883, 32,877
and 7,853 common shares for the years ended December 31, 2013, 2012
and 2011, respectively)
Cash dividends declared and paid on common shares ($0.52 per share for
each of the years ended December 31, 2013, 2012 and 2011, respectively)
Balance, end of year
Accumulated Other Comprehensive Income (Loss), Net of Taxes
Balance, beginning of year
Amortization of prior service credits, net of taxes of $20 for each of
the years ended December 31, 2013, 2012 and 2011, respectively
Amortization of net actuarial losses, net of taxes of ($541), ($456) and ($243)
for the years ended December 31, 2013, 2012 and 2011, respectively
Unrecognized actuarial gains (losses), net of taxes ($2,527), $340 and $1,932 for
years ended December 31, 2013, 2012 and 2011, respectively
Change in net unrealized (losses) gains on securities available for sale, net of
taxes of approximately $20,609, ($5,259) and ($7,706) for the years ended
December 31, 2013, 2012 and 2011, respectively
Reclassification adjustment for (gains) losses included in net
income, net of taxes of approximately $700, ($318) and ($692) for the
years ended December 31, 2013, 2012 and 2011, respectively
Balance, end of year
Total Stockholders' Equity
For the years ended December 31,
2013
2012
2011
(Dollars in thousands, except per share data)
241,856
37,752
223,510
34,331
204,128
35,348
(128)
(63)
(119)
(105)
(50)
(6)
(15,618)
263,743
(15,817)
241,856
(15,910)
223,510
12,137
4,813
(3,744)
(26)
696
3,261
(26)
587
(479)
(25)
311
(2,505)
(26,541)
6,831
9,890
(902)
(11,375)
411
12,137
886
4,813
$
432,532
$
442,365
$
416,911
The accompanying notes are an integral part of these consolidated financial statements.
85
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses
Depreciation and amortization of premises and equipment
Origination of loans held for sale
Proceeds from sale of loans held for sale
Net loss (gain) on sales of loans held for sale
Net gain on sales of loans (including delinquent loans)
Net gain on sales of securities
Other-than-temporary impairment charge on securities
Amortization of premium, net of accretion of discount
Fair value adjustment for financial assets and financial liabilities
Income from bank owned life insurance
Stock based compensation expense
Deferred compensation
Amortization of core deposit intangibles
Excess tax provision (benefits) from stock-based payment arrangements
Deferred income tax provision (benefit)
Net decrease in prepaid FDIC assessment
Increase in other assets
Increase (decrease) in other liabilities
Net cash provided by operating activities
Investing Activities
Purchases of premises and equipment
Net (purchases) redemption of Federal Home Loan Bank-NY shares
Purchases of securities available for sale
Proceeds from sales and calls of securities available for sale
Proceeds from maturities and prepayments of
securities available for sale
Net (originations) and repayments of loans
Purchases of loans
Proceeds from sale of delinquent loans
Purchase of bank owned life insurance
Proceeds from sale of Real Estate Owned
Net cash provided by (used in) investing activities
2013
For the years ended December 31,
2012
(In thousands)
2011
$
37,752
$
34,331
$
35,348
13,935
2,953
-
-
108
(284)
(3,021)
1,419
7,588
2,521
(3,363)
3,412
(790)
468
(443)
(682)
3,287
(1,410)
10,985
74,435
(809)
(3,688)
(458,596)
194,009
149,387
(236,582)
(10,189)
35,681
-
4,763
(326,024)
21,000
3,207
-
-
9
(31)
(47)
776
6,643
(55)
(2,790)
3,260
(86)
469
303
(804)
3,888
(3,695)
4,719
71,097
(1,290)
(12,092)
(311,654)
12,637
170,798
(78,379)
(3,456)
44,223
(20,000)
1,225
(197,988)
21,500
3,185
(3,865)
4,208
(343)
(168)
-
1,578
5,872
(1,960)
(2,769)
2,686
512
468
(292)
685
4,068
(1,638)
(4,355)
64,720
(4,561)
1,361
(157,741)
8,000
154,600
12,773
(19,053)
27,817
(4,556)
4,053
22,693
Continued
The accompanying notes are an integral part of these consolidated financial statements.
86
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
2013
For the years ended December 31,
2012
(In thousands)
2011
Financing Activities
Net increase in non-interest bearing deposits
Net (decrease) increase in interest bearing deposits
Net increase in mortgagors' escrow deposits
Net proceeds (repayments) from short-term borrowed funds
Proceeds from long-term borrowings
Repayment of long-term borrowings
Purchases of treasury stock
Excess tax benefits (provision) from stock-based payment arrangements
Proceeds from issuance of common stock upon exercise
of stock options
Cash dividends paid
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental Cash Flow Disclosure
Interest paid
Income taxes paid
Taxes paid if excess tax benefits on stock-based compensation
were not tax deductible
Non-cash activities:
Loans transferred to Other Real Estate Owned
Loans provided for the sale of Other Real Estate Owned
Loans held for investment transferred to loans held for sale
Loans held for sale transferred to loans held for investment
$
$
$
41,554
174,715
238
(102,500)
269,346
(109,911)
(14,151)
443
533
(15,618)
244,649
(6,940)
40,425
33,485
53,602
21,389
$
$
$
37,282
(172,193)
2,774
132,000
212,518
(80,000)
(5,551)
(303)
885
(15,817)
111,595
(15,296)
55,721
40,425
62,368
21,947
$
$
$
22,309
(70,332)
2,471
-
245,447
(258,076)
(7,722)
292
2,040
(15,910)
(79,481)
7,932
47,789
55,721
75,914
22,917
21,832
21,644
23,209
5,369
3,011
13,008
2,214
6,127
2,110
12,200
400
7,286
1,655
-
-
The accompanying notes are an integral part of these consolidated financial statements.
87
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the years ended December 31, 2013, 2012 and 2011
1. Nature of Operations
Flushing Financial Corporation (the “Holding Company”), a Delaware business corporation, is a bank holding company.
On February 28, 2013 the Holding Company’s wholly owned subsidiary Flushing Savings Bank, FSB (the “Savings
Bank) merged with and into Flushing Commercial Bank (the “Merger”). Flushing Commercial Bank was the surviving
entity of the Merger, whose name was changed to Flushing Bank (the “Bank”). The Holding Company and its direct and
indirect wholly-owned subsidiaries, including the Bank, Flushing Preferred Funding Corporation, Flushing Service
Corporation, and FSB Properties Inc., are collectively herein referred to as the “Company.”
The Merger was the result of the combination of two entities under common control, and in accordance with ASC 805-
50-30-5, the Bank measured the recognized assets and liabilities transferred at their carrying amounts (historical cost) for
this transaction.
The Company’s principal business is attracting retail deposits from the general public and investing those deposits
together with funds generated from ongoing operations and borrowings, primarily in (1) originations and purchases of
multi-family residential properties and , to a lesser extent, one-to-four family (focusing on mixed-use properties, which
are properties that contain both residential dwelling units and commercial units) and commercial real estate mortgage
loans; (2) construction loans, primarily for residential properties; (3) Small Business Administration (“SBA”) loans and
other small business loans; (4) mortgage loan surrogates such as mortgage-backed securities; and (5) U.S. government
securities, corporate fixed-income securities and other marketable securities. The Bank also originates certain other
consumer loans including overdraft lines of credit. The Bank primarily conducts its business through seventeen full-
service banking offices, nine of which are located in Queens County, two in Nassau County, five in Kings County
(Brooklyn), and one in New York County (Manhattan), New York. The Bank also operates “iGObanking.com®”, an
internet branch, offering checking, savings and certificates of deposit accounts.
2. Summary of Significant Accounting Policies
The accounting and reporting policies of the Company follow generally accepted accounting principles in the United
States of America (“GAAP”) and general practices within the banking industry. The policies which materially affect the
determination of the Company’s financial position, results of operations and cash flows are summarized below.
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of the Holding Company and the following
direct and indirect wholly-owned subsidiaries of the Holding Company: the Bank, Flushing Preferred Funding
Corporation (“FPFC”), Flushing Service Corporation (“FSC”), and FSB Properties Inc. (“Properties”). FPFC is a real
estate investment trust formed to hold a portion of the Bank’s mortgage loans to facilitate access to capital markets. FSC
was formed to market insurance products and mutual funds. Properties is currently used to hold title to real estate owned
that is obtained via foreclosure. All intercompany transactions and accounts are eliminated in consolidation. The
Holding Company currently has three unconsolidated subsidiaries in the form of wholly-owned statutory business trusts,
which were formed to issue guaranteed capital debentures (“capital securities”). Please see Note 9, “Borrowed Funds and
Securities Sold Under Agreements to Repurchase,” for additional information regarding these trusts.
Use of Estimates:
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at
the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Estimates
that are particularly susceptible to change in the near term are used in connection with the determination of the allowance
for loan losses, the evaluation of goodwill for impairment, the evaluation of the need for a valuation allowance of the
Company’s deferred tax assets, the fair value of the investment portfolio and the evaluation of other-than-temporary
impairment (“OTTI”) on securities. The current economic environment has increased the degree of uncertainty inherent
in these material estimates. Actual results could differ from these estimates.
Cash and Cash Equivalents:
For the purpose of reporting cash flows, the Company defines cash and due from banks, overnight interest-earning
deposits and federal funds sold with original maturities of 90 days or less as cash and cash equivalents. At December 31,
2013 and 2012, the Company’s cash and cash equivalents totaled $33.5 million and $40.4 million, respectively. Included
in cash and cash equivalents at those dates were $23.7 million and $31.3 million in interest-earning deposits in other
88
financial institutions, primarily consisting of balances due from the Federal Reserve Bank of New York and the Federal
Home Loan Bank of New York (“FHLB-NY”). The Bank is required to maintain cash reserves equal to a percentage of
certain deposits. The reserve requirement totaled $10.1 million and $6.5 million at December 31, 2013 and 2012,
respectively.
Securities Available for Sale:
Securities are classified as available for sale when management intends to hold the securities for an indefinite period of
time or when the securities may be utilized for tactical asset/liability purposes and may be sold from time to time to
effectively manage interest rate exposure and resultant prepayment risk and liquidity needs. Premiums and discounts are
amortized or accreted, respectively, using the level-yield method. Realized gains and losses on the sales of securities are
determined using the specific identification method. Unrealized gains and losses (other than unrealized losses considered
other-than-temporary which are recognized in the Consolidated Statements of Income) on securities available for sale are
excluded from earnings and reported as part of accumulated other comprehensive income, net of taxes. In estimating
other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair
value has been less than amortized cost, (2) the current interest rate environment, (3) the financial condition and near-
term prospects of the issuer, if applicable, and (4) the intent and ability of the Company to retain its investment in the
issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Other-than-temporary impairment
losses for debt securities are measured using a discounted cash flow model. Other-than-temporary impairment losses for
equity securities are measured using quoted market prices, when available, or, when market quotes are not available due
to an illiquid market, we use an impairment model from a third party or quotes from investment brokers.
Goodwill:
Goodwill is presumed to have an indefinite life and is tested annually, or when certain conditions are met, for
impairment, rather than amortized. If the fair value of the reporting unit is greater than the goodwill amount, no further
evaluation is required. If the fair value of the reporting unit is less than the goodwill amount, further evaluation would be
required to compare the fair value of the reporting unit to the goodwill amount and determine if a write down is required.
In September 2011, the FASB issued ASU 2011-08, which gives entities the option of first performing a qualitative
assessment to test goodwill for impairment on a reporting-unit-by-reporting-unit basis. If, after performing the qualitative
assessment, an entity concludes that it is more likely than not that the fair value of a reporting unit is less than its
carrying amount, the entity would perform the two-step goodwill impairment test described in ASC 350. However, if,
after applying the qualitative assessment, the entity concludes that it is not more likely than not that the fair value is less
than the carrying amount, the two-step goodwill impairment test is not required.
In performing the goodwill impairment testing, the Company has identified a single reporting unit. The Company
performed the qualitative assessment as outlined in ASU 2011-08 in assessing the carrying value of goodwill as of
December 31, 2013 and determined that there was no goodwill impairment. At December 31, 2013, the carrying amount
of goodwill totaled $16.1 million. The identification of additional reporting units, the use of other valuation techniques
and/or changes to input assumptions used in the analysis could result in materially different evaluations of goodwill
impairment.
Loans:
Loans are reported at their principal outstanding balance net of any unearned income, charge-offs, deferred loan fees and
costs on originated loans and unamortized premiums or discounts on purchased loans. Interest on loans is recognized on
the accrual basis. The accrual of income on loans is generally discontinued when certain factors, such as contractual
delinquency of 90 days or more, indicate reasonable doubt as to the timely collectability of such income. Uncollected
interest previously recognized on non-accrual loans is reversed from interest income at the time the loan is placed on
non-accrual status. A non-accrual loan can be returned to accrual status when contractual delinquency returns to less than
90 days delinquent. Subsequent cash payments received on non-accrual loans that do not bring the loan to less than 90
days delinquent are recorded on a cash basis. Subsequent cash payments can also be applied first as a reduction of
principal until all principal is recovered and then subsequently to interest, if in management’s opinion, it is evident that
recovery of all principal due is unlikely to occur. Loan fees and certain loan origination costs are deferred. Net loan
origination costs and premiums or discounts on loans purchased are amortized into interest income over the contractual
life of the loans using the level-yield method. Prepayment penalties received on loans which pay in full prior to their
scheduled maturity are included in interest income in the period they are collected.
Allowance for Loan Losses:
The Company maintains an allowance for loan losses at an amount, which, in management’s judgment, is adequate to
absorb probable estimated losses inherent in the loan portfolio. Management’s judgment in determining the adequacy of
89
the allowance is based on evaluations of the collectability of loans. This evaluation is inherently subjective, as it requires
estimates that are susceptible to significant revisions as more information becomes available.
The allowance is established through a provision for loan losses based on management’s evaluation of the risk inherent
in the various components of the loan portfolio and other factors, including historical loan loss experience (which is
updated quarterly), current economic conditions, delinquency and non-accrual trends, classified loan levels, risk in the
portfolio and volumes and trends in loan types, recent trends in charge-offs, changes in underwriting standards,
experience, ability and depth of the Company’s lenders, collection policies and experience, internal loan review function
and other external factors. Additionally, the Company segregated our loans into two portfolios based on year of
origination. One portfolio was reviewed for loans originated after December 31, 2009 and a second portfolio for loans
originated prior to January 1, 2010. Our decision to segregate the portfolio based upon origination dates was based on
changes made in our underwriting standards during 2009. By the end of 2009, all loans were being underwritten based
on revised and tightened underwriting standards. Loans originated prior to 2010 have a higher delinquency rate and loss
history. Each of the years in the portfolio for loans originated prior to 2010 has a similar delinquency rate. The
determination of the amount of the allowance for loan losses includes estimates that are susceptible to significant
changes due to changes in appraisal values of collateral, national and local economic conditions and other factors. We
review our loan portfolio by separate categories with similar risk and collateral characteristics. Impaired loans are
segregated and reviewed separately. All non-accrual loans are classified impaired. The Company’s Board of Directors
reviews and approves management’s evaluation of the adequacy of the allowance for loan losses on a quarterly basis.
The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses.
Increases and decreases in the allowance other than charge-offs and recoveries are included in the provision for loan
losses. When a loan or a portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged
against the allowance, and subsequent recoveries, if any, are credited to the allowance.
The Company recognizes a loan as non-performing when the borrower has demonstrated the inability to bring the loan
current, or due to other circumstances which, in management’s opinion, indicate the borrower will be unable to bring the
loan current within a reasonable time. All loans classified as non-performing, which includes all loans past due 90 days
or more, are classified as non-accrual unless there is, in our opinion, compelling evidence the borrower will bring the
loan current in the immediate future. Appraisals are obtained and/or updated internal evaluations are prepared as soon as
practical, and before the loan becomes 90 days delinquent. The loan balances of collateral dependent impaired loans are
compared to the property’s updated fair value. The Company considers fair value of collateral dependent loans to be
85% of the appraised or internally estimated value of the property. The balance which exceeds fair value is generally
charged-off. Management reviews the allowance for loan losses on a quarterly basis, and records as a provision the
amount deemed appropriate, after considering items such as, current year charge-offs, charge-off trends, new loan
production, current balance by particular loan categories, and delinquent loans by particular loan categories.
A loan is considered impaired when, based upon current information, the Company believes it is probable that it will be
unable to collect all amounts due, both principal and interest, in accordance with the original terms of the loan. Impaired
loans are measured based on the present value of the expected future cash flows discounted at the loan’s effective
interest rate or at the loan’s observable market price or, as a practical expedient, the fair value of the collateral if the loan
is collateral dependent. Interest income on impaired loans is recorded on the cash basis. The Company’s management
considers all non-accrual loans impaired.
The Company reviews each impaired loan on an individual basis to determine if either a charge-off or a valuation
allowance needs to be allocated to the loan. The Company does not charge-off or allocate a valuation allowance to loans
for which management has concluded the current value of the underlying collateral will allow for recovery of the loan
balance either through the sale of the loan or by foreclosure and sale of the property.
The Company evaluates the underlying collateral through a third party appraisal, or when a third party appraisal is not
available, the Company will use an internal evaluation. The internal evaluations are prepared using an income approach
or a sales approach. The income approach is used for income producing properties and uses current revenues less
operating expenses to determine the net cash flow of the property. Once the net cash flow is determined, the value of the
property is calculated using an appropriate capitalization rate for the property. The sales approach uses comparable sales
prices in the market. When an internal evaluation is used, we place greater reliance on the income approach to value the
collateral.
In preparing internal evaluations of property values, the Company seeks to obtain current data on the subject property
from various sources, including: (1) the borrower; (2) copies of existing leases; (3) local real estate brokers and
appraisers; (4) public records (such as for real estate taxes and water and sewer charges); (5) comparable sales and rental
90
data in the market; (6) an inspection of the property and (7) interviews with tenants. These internal evaluations primarily
focus on the income approach and comparable sales data to value the property.
As of December 31, 2013, we utilized recent third party appraisals of the collateral to measure impairment for $66.6
million, or 81.4%, of collateral dependent impaired loans, and used internal evaluations of the property’s value for $15.2
million, or 18.6%, of collateral dependent impaired loans.
The Company may restructure a loan to enable a borrower experiencing financial difficulties to continue making
payments when it is deemed to be in the Company’s best long-term interest. This restructure may include reducing the
interest rate or amount of the monthly payment for a specified period of time, after which the interest rate and repayment
terms revert to the original terms of the loan. We classify these loans as Troubled Debt Restructured (“TDR”).
These restructurings have not included a reduction of principal balance. The Company believes that restructuring these
loans in this manner will allow certain borrowers to become and remain current on their loans. Restructured loans are
classified as a TDR when the Bank grants a concession to a borrower who is experiencing financial difficulties. All loans
classified as TDR are considered impaired, however TDR loans which have been current for six consecutive months at
the time they are restructured as TDR remain on accrual status and are not included as part of non-performing loans.
Loans which were delinquent at the time they are restructured as a TDR are placed on non-accrual status and reported as
non-performing loans until they have made timely payments for six consecutive months. Loans that are restructured as
TDR but are not performing in accordance with the restructured terms are placed on non-accrual status and reported as
non-performing loans.
The allocation of a portion of the allowance for loan losses for a performing TDR loan is based upon the present value of
the future expected cash flows discounted at the loan’s original effective rate, or for a non-performing TDR which is
collateral dependent, the fair value of the collateral. At December 31, 2013, there were no commitments to lend
additional funds to borrowers whose loans were modified to a TDR. The modification of loans to a TDR did not have a
significant effect on our operating results, nor did it require a significant allocation of the allowance for loan losses.
Loans Held for Sale:
Loans held for sale are carried at the lower of cost or estimated fair value. At December 31, 2013, loans held for sale
consisted of one non-performing multi-family residential loan for $0.4 million. At December 31, 2012, loans held for
sale consisted of four non-performing multi-family residential loans totaling $3.4 million and four non-performing one-
to-four-family – mixed-use properties totaling $1.9 million.
Bank Owned Life Insurance:
Bank owned life insurance (“BOLI”) represents life insurance on the lives of certain employees who have provided
positive consent allowing the Bank to be the beneficiary of such policies. BOLI is carried in the consolidated statements
of financial position at its cash surrender value. Increases in the cash value of the policies, as well as proceeds received,
are recorded in other non-interest income, and are not subject to income taxes.
Other Real Estate Owned:
Other real estate owned (“OREO”) consists of property acquired by foreclosure. These properties are carried at fair
value. The fair value is based on appraised value through a current appraisal, or at times through an internal review,
additionally adjusted by the estimated costs to sell the property. This determination is made on an individual asset basis.
If the fair value of a property is less than the carrying amount, the difference is recognized as a valuation allowance.
Further decreases to the estimated value will be charged directly to expense.
Bank Premises and Equipment:
Bank premises and equipment are stated at cost, less depreciation accumulated on a straight-line basis over the estimated
useful lives of the related assets (3 to 40 years). Leasehold improvements are amortized on a straight-line basis over the
term of the related leases or the lives of the assets, whichever is shorter. Maintenance, repairs and minor improvements
are charged to non-interest expense in the period incurred.
Federal Home Loan Bank Stock:
The FHLB-NY has assigned to the Bank a mandated membership stock purchase, based on its asset size. In addition, for
all borrowing activity, the Bank is required to purchase shares of FHLB-NY non-marketable capital stock at par. Such
shares are redeemed by FHLB-NY at par with reductions in the Bank’s borrowing levels. The Bank carries its
investment in FHLB-NY stock at historical cost. The Company periodically reviews its FHLB-NY stock to determine if
impairment exists. At December 31, 2013, the Company considered among other things the earnings performance, credit
rating and asset quality of the FHLB-NY. Based on this review, the Company did not consider the value of our
investment in FHLB-NY stock to be impaired at December 31, 2013.
91
Securities Sold Under Agreements to Repurchase:
Securities sold under agreements to repurchase are accounted for as collateralized financing and are carried at amounts at
which the securities will be subsequently reacquired as specified in the respective agreements. Interest incurred under
these agreements is included in other interest expense.
Income Taxes:
Deferred income tax assets and liabilities are determined using the asset and liability (or balance sheet) method. Under
this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences
between book and tax bases of the various balance sheet assets and liabilities. A deferred tax liability is recognized on all
taxable temporary differences and a deferred tax asset is recognized on all deductible temporary differences and
operating losses and tax credit carry-forwards. A valuation allowance is recognized to reduce the potential deferred tax
asset if it is “more likely than not” that all or some portion of that potential deferred tax asset will not be realized. The
Company must also take into account changes in tax laws or rates when valuing the deferred income tax amounts it
carries on its Consolidated Statements of Financial Condition.
Stock Compensation Plans:
The Company accounts for its stock based compensation in accordance with the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) Topic 718 “Stock Compensation” which establishes fair value as
the measurement objective in accounting for share-based payment arrangements and requires a fair-value-based
measurement method in accounting for share-based payment transactions with employees. It also requires measurement
of the cost of employee services received in exchange for an award of an equity instrument based on the grant date fair
value of the award. That cost is recognized over the period during which an employee is required to provide service in
exchange for the award. The requisite service period is usually the vesting period.
Benefit Plans:
The Company sponsors a qualified pension, 401(k), and profit sharing plan for its employees. The Company also
sponsors postretirement health care and life insurance benefits plans for its employees, a non-qualified deferred
compensation plan for officers who have achieved the level of at least senior vice president, and a non-qualified pension
plan for its outside directors.
The Company recognizes the funded status of a benefit plan – measured as the difference between plan assets at fair
value and the benefit obligation – in the statement of financial condition, with the unrecognized credits and charges
recognized, net of taxes, as a component of accumulated other comprehensive income. These credits or charges arose as
a result of gains or losses and prior service costs or credits that arose during prior periods but were not recognized as
components of net periodic benefit cost.
Treasury Stock:
The Company records treasury stock at cost. Treasury stock is reissued at average cost.
Derivatives:
Derivatives are required to be recorded on the Consolidated Statements of Financial Condition at fair value. The
Company records derivatives on a gross basis in “Other assets” and “Other liabilities” in the Consolidated Statements of
Financial Condition. The accounting for changes in value of a derivative depends on whether or not the transaction has
been designated and qualifies for hedge accounting. Derivatives that are not designated as hedges are reported and
measured at fair value through earnings.
To qualify for hedge accounting, a derivative must be highly effective at reducing the risk associated with the exposure
being hedged. In addition, for a derivative to be designated as a hedge, the risk management objective and strategy must
be documented. Hedge documentation must identify the derivative hedging instrument, the asset or liability or forecasted
transaction and type of risk to be hedged, and how the effectiveness of the derivative is assessed prospectively and
retrospectively. The extent to which a derivative has been, and is expected to continue to be, effective at offsetting
changes in the fair value of the hedged item must be assessed and documented at least quarterly. Any hedge
ineffectiveness (i.e., the amount by which the gain or loss on the designated derivative instrument does not exactly offset
the change in the hedged item attributable to the hedged risk) must be reported in current-period earnings. If it is
determined that a derivative is not highly effective at hedging the designated exposure, hedge accounting is discontinued.
Segment Reporting:
Management views the Company as operating as a single unit, a community bank. Therefore, segment information is not
provided.
92
Advertising Expense:
Costs associated with advertising are expensed as incurred. The Company recorded advertising expenses of $1.9 million,
$1.7 million, and $2.7 million for the years ended December 31, 2013, 2012 and 2011, respectively.
Earnings per Common Share:
Earnings per share are computed in accordance with ASC Topic 260 “Earnings Per Share.” Basic earnings per common
share is computed by dividing net income available to common shareholders by the total weighted average number of
common shares outstanding, which includes unvested participating securities. Unvested share-based payment awards that
contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities
and as such are included in the calculation of earnings per share. The Company’s unvested restricted stock and restricted
stock unit awards are considered participating securities. Therefore, weighted average common shares outstanding used
for computing basic earnings per common share includes common shares outstanding plus unvested restricted stock and
restricted stock unit awards. The computation of diluted earnings per share includes the additional dilutive effect of stock
options outstanding and other common stock equivalents during the period. Common stock equivalents that are anti-
dilutive are not included in the computation of diluted earnings per common share. The numerator for calculating basic
and diluted earnings per common share is net income available to common shareholders. The shares held in the
Company’s Employee Benefit Trust are not included in shares outstanding for purposes of calculating earnings per
common share.
Earnings per common share have been computed based on the following, for the years ended December 31:
2013
2012
(In thousands, except per share data)
2011
Net income, as reported
Divided by:
$
37,752
$
34,331
$
35,348
Weighted average common shares outstanding
Weighted average common stock equivalents
Total weighted average common shares outstanding and
common stock equivalents
30,047
26
30,073
30,402
31
30,433
Basic earnings per common share
Diluted earnings per common share
$
$
1.26
1.26
$
$
1.13
1.13
$
$
30,623
31
30,654
1.15
1.15
Options to purchase 151,900 shares, at an average exercise price of $18.55, 550,400 shares, at an average exercise price
of $17.63, and 720,340 shares, at an average exercise price of $16.71, are anti-dilutive and were not included in the
computation of diluted earnings per common share for the years ended December 31, 2013, 2012 and 2011, respectively.
93
3. Loans
The composition of loans is as follows at December 31:
Multi-family residential
Commercial real estate
One-to-four family (cid:650) mixed-use property
One-to-four family (cid:650) residential
Co-operative apartments
Construction
Small Business Administration
Taxi medallion
Commercial business and other
Gross loans
Unearned loan fees and deferred costs, net
Total loans
2013
2012
(In thousands)
$
1,712,039
512,552
595,751
193,726
10,137
4,247
7,792
13,123
373,641
3,423,008
11,170
$
1,534,438
515,438
637,353
198,968
6,303
14,381
9,496
9,922
295,076
3,221,375
12,746
$
3,434,178
$
3,234,121
The total amount of loans on non-accrual status was $48.0 million and $84.1 million at December 31, 2013 and 2012,
respectively. The total amount of loans classified as impaired, which includes all loans on non-accrual status, was $81.8
million and $128.6 million at December 31, 2013 and 2012, respectively. We generally adjust the carrying value of
collateral dependent impaired loans to their fair value with a charge to the allowance for loan losses. The average balance
of impaired loans was $95.0 million and $148.9 million for 2013 and 2012, respectively.
The Company may restructure a loan to enable a borrower to continue making payments when it is deemed to be in our
best long-term interest. This restructure may include reducing the interest rate or amount of the monthly payment for a
specified period of time, after which the interest rate and repayment terms revert to the original terms of the loan. The
Company classifies these loans as a TDR.
The following table shows loans modified and classified as TDR during the years ended December 31, 2013 and 2012:
(Dollars in thousands)
Number
Balance
Modification description
Number
Balance
Modification description
For the year ended
December 31, 2013
For the year ended
December 31, 2012
Multi-family residential
2
$
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Construction loans
Commercial business and other
1
1
-
2
698
Received a below market
interest rate and the loan
amortization was extended
273 Received a below market
interest rate and the loan
amortization was extended
390 Received a below market
interest rate and the loan
amortization was extended
-
687 Received a below market
interest rate and the loan
amortization was extended
-
$
-
3
3
1
2
5,300 Received a below market
interest rate and the loan
amortization was extended
1,200 Received a below market
interest rate
400 Received a below market
interest rate
1,900 Received a below market
interest rate and the loan
amortization was extended
Total
6
$
2,048
9
$
8,800
The recorded investment of each of the loans modified and classified to a TDR, presented in the table above, was
unchanged as there was no principal forgiven in any of these modifications.
94
The following table shows our recorded investment for loans classified as TDR that are performing according to their
restructured terms at the periods indicated:
(Dollars in thousands)
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Construction
Commercial business and other
Total performing troubled debt restructured
December 31, 2013
December 31, 2012
Number
of contracts
Recorded
investment
Number
of contracts
Recorded
investment
10
4
8
1
1
4
28
$
3,087
3,686
2,692
364
746
3,127
8
5
7
1
1
2
$
2,347
8,499
2,336
374
3,805
2,540
$
13,702
24
$
19,901
During the year ended December 31, 2013, no TDR loans were transferred to non-accrual status. During the year ended
December 31, 2012, three multi-family TDR totaling $6.9 million and one commercial TDR for $0.4 million were
transferred to non-accrual status as they were no longer performing in accordance with their modified terms.
The following table shows our recorded investment for loans classified as TDR that are not performing according to their
restructured terms at the periods indicated:
(Dollars in thousands)
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
Construction
Total troubled debt restructurings
that subsequently defaulted
December 31, 2013
December 31, 2012
Number
of contracts
Recorded
investment
Number
of contracts
Recorded
investment
-
1
-
-
1
$
-
2,332
-
-
$
2,332
2
2
2
1
7
$
323
3,075
816
7,368
$
11,582
95
The following table shows our non-performing loans at the periods indicated:
(Dollars in thousands)
Loans ninety days or more past due
and still accruing:
Multi-family residential
One-to-four family residential
Commercial Business and other
Total
Non-accrual mortgage loans:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Co-operative apartments
Construction
Total
Non-accrual non-mortgage loans:
Small Business Administration
Commercial Business and other
Total
Total non-accrual loans
At December 31,
2013
2012
$
$
52
15
539
606
13,297
9,962
9,063
13,250
57
-
45,629
-
2,348
2,348
47,977
-
-
644
644
13,095
15,640
16,553
13,726
234
7,695
66,943
283
16,860
17,143
84,086
Total non-accrual loans and ninety days
or more past due and still accruing
$
48,583
$
84,730
The following is a summary of interest foregone on non-accrual loans and loans classified as TDR for the years ended
December 31:
Interest income that would have been recognized had the loans performed
in accordance with their original terms
Less: Interest income included in the results of operations
Total foregone interest
2013
2012
(In thousands)
2011
$
$
4,656
1,213
3,443
$
$
9,026
1,692
7,334
$
$
9,654
2,126
7,528
96
The following table shows an age analysis of our recorded investment in loans at December 31, 2013:
(in thousands)
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Co-operative apartments
Construction loans
Small Business Administration
Taxi medallion
Commercial business and other
Total
30 - 59 Days
Past Due
60 - 89 Days
Past Due
Greater
than
90 Days
Total Past
Due
(in thousands)
Current
Total Loans
$
$
14,101
5,029
14,017
3,828
99
-
106
-
187
37,367
$
$
2,554
523
1,099
518
-
-
-
-
2
4,696
$
$
13,297
9,962
9,063
12,953
144
-
-
-
1,213
46,632
$
$
29,952
15,514
24,179
17,299
243
-
106
-
1,402
88,695
$
$
1,682,087
497,038
571,572
176,427
9,894
4,247
7,686
13,123
372,239
3,334,313
$
$
1,712,039
512,552
595,751
193,726
10,137
4,247
7,792
13,123
373,641
3,423,008
The following table shows an age analysis of our recorded investment in loans at December 31, 2012:
(in thousands)
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Co-operative apartments
Construction loans
Small Business Administration
Taxi medallion
Commercial business and other
Total
30 - 59 Days
Past Due
60 - 89 Days
Past Due
Greater
than
90 Days
Total Past
Due
(in thousands)
Current
Total Loans
$
$
24,059
9,764
21,012
3,407
-
2,462
404
-
2
61,110
$
$
4,828
3,622
3,368
2,010
-
-
-
-
5
13,833
$
$
13,095
15,639
16,554
13,602
234
7,695
283
-
15,601
82,703
$
$
41,982
29,025
40,934
19,019
234
10,157
687
-
15,608
157,646
$
$
1,492,456
486,413
596,419
179,949
6,069
4,224
8,809
9,922
279,468
3,063,729
$
$
1,534,438
515,438
637,353
198,968
6,303
14,381
9,496
9,922
295,076
3,221,375
97
The following table shows the activity in the allowance for loan losses for the year ended December 31, 2013:
(in thousands)
Multi-family
residential
Commercial
real estate
One-to-four
family -
mixed-use
property
One-to-four
family -
residential
Co-operative
apartments
Construction
loans
Small Business
Administration
Taxi
medallion
Commercial
business and
other
Total
Allowance for credit losses:
Beginning balance
Charge-off's
Recoveries
Provision
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Financing Receivables:
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
$
$
$
$
$
$
$
$
13,001
(3,585)
541
2,127
12,084
5,705
(1,051)
324
(19)
4,959
5,960
(4,206)
266
4,308
6,328
$
$
1,999
(701)
272
509
2,079
46
(108)
4
162
104
66
(2,678)
-
3,056
444
505
(457)
87
323
458
$
7
-
-
(7)
$
-
3,815
(2,057)
86
3,476
5,320
31,104
(14,843)
1,580
13,935
31,776
$
$
$
$
$
$
$
$
$
312
$
164
$
875
$
58
$
-
$
17
$
-
$
-
$
222
$
1,648
$
11,772
$
4,795
$
5,453
$
2,021
$
104
$
427
$
458
$
-
$
5,098
$
30,128
$
1,712,039
$
512,552
$
595,751
$
193,726
$
10,137
$
4,247
$
7,792
$
13,123
$
373,641
$
3,423,008
$
21,757
$
19,757
$
16,939
$
14,390
$
59
$
746
$
-
-
$
$
8,120
$
81,768
$
1,690,282
$
492,795
$
578,812
$
179,336
$
10,078
$
3,501
$
7,792
$
13,123
$
365,521
$
3,341,240
98
The following table shows the activity in the allowance for loan losses for the year ended December 31, 2012:
(in thousands)
Multi-family
residential
Commercial
real estate
One-to-four
family -
mixed-use
property
One-to-four
family -
residential
Co-operative
apartments
Construction
loans
Small Business
Administration
Taxi
medallion
Commercial
business and
other
Total
Allowance for credit losses:
Beginning balance
Charge-off's
Recoveries
Provision
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Financing Receivables:
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
$
$
$
$
$
$
$
$
$
$
$
11,267
(6,016)
144
7,606
13,001
5,210
(2,746)
307
2,934
5,705
5,314
(4,286)
358
4,574
5,960
1,649
(1,583)
29
1,904
1,999
80
(62)
-
28
46
668
(4,591)
-
3,989
66
987
(324)
87
(245)
505
41
-
-
(34)
7
5,128
(1,661)
104
244
3,815
30,344
(21,269)
1,029
21,000
31,104
$
$
$
$
$
$
$
$
$
$
183
$
359
$
571
$
94
$
-
$
38
$
-
$
-
$
249
$
1,494
$
12,818
$
5,346
$
5,389
$
1,905
$
46
$
28
$
505
$
7
$
3,566
$
29,610
$
1,534,438
$
515,438
$
637,353
$
198,968
$
6,303
$
14,381
$
9,496
$
9,922
$
295,076
$
3,221,375
$
21,675
$
23,525
$
26,368
$
15,702
$
237
$
14,232
$
850
$
-
$
26,021
$
128,610
$
1,512,763
$
491,913
$
610,985
$
183,266
$
6,066
$
149
$
8,646
$
9,922
$
269,055
$
3,092,765
99
The following table shows our recorded investment, unpaid principal balance and allocated allowance for loan losses,
average recorded investment and interest income recognized for loans that were considered impaired at or for the year
ended December 31, 2013:
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment Recognized
Interest
Income
(Dollars in thousands)
With no related allowance recorded:
Mortgage loans:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Co-operative apartments
Construction
Non-mortgage loans:
Small Business Administration
Taxi Medallion
Commercial Business and other
$
$
$
18,709
16,721
12,748
14,026
59
-
-
-
3,225
20,931
17,405
15,256
17,527
147
118
-
-
5,527
Total loans with no related allowance recorded
65,488
76,911
$
-
-
-
-
-
-
-
-
-
-
$
22,091
19,846
13,916
14,529
189
4,014
247
-
5,309
402
266
319
125
-
-
-
-
268
80,141
1,380
With an allowance recorded:
Mortgage loans:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Co-operative apartments
Construction
Non-mortgage loans:
Small Business Administration
Taxi Medallion
Commercial Business and other
Total loans with an allowance recorded
Total Impaired Loans:
Total mortgage loans
Total non-mortgage loans
3,048
3,036
4,191
364
-
746
-
-
4,895
16,280
3,049
3,102
4,221
364
-
746
-
4,894
16,376
312
164
875
58
-
17
-
-
222
2,892
6,388
4,041
368
-
1,929
-
-
4,354
1,648
19,972
170
194
228
15
-
18
-
-
239
864
$
$
73,648
8,120
$
$
82,866
10,421
$
$
1,426
222
$
$
90,203
9,910
$
$
1,737
507
100
The following table shows our recorded investment, unpaid principal balance and allocated allowance for loan losses,
average recorded investment and interest income recognized for loans that were considered impaired at or for the year
ended December 31, 2012:
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment Recognized
Interest
Income
(Dollars in thousands)
With no related allowance recorded:
Mortgage loans:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Co-operative apartments
Construction
Non-mortgage loans:
Small Business Administration
Taxi Medallion
Commercial Business and other
$
$
$
19,753
34,672
23,054
15,328
237
10,598
850
-
4,391
22,889
38,594
25,825
18,995
299
15,182
1,075
-
5,741
Total loans with no related allowance recorded
108,883
128,600
$
-
-
-
-
-
-
-
-
-
-
$
27,720
43,976
27,018
15,047
174
14,689
1,042
-
5,102
429
536
485
186
2
173
25
-
53
134,768
1,889
With an allowance recorded:
Mortgage loans:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Co-operative apartments
Construction
Non-mortgage loans:
Small Business Administration
Taxi Medallion
Commercial Business and other
1,922
7,773
3,314
374
-
3,805
-
-
2,539
1,937
7,839
3,313
374
-
3,805
-
-
2,540
183
359
571
94
-
38
-
-
249
3,174
6,530
4,385
188
101
4,275
-
-
2,273
124
400
205
19
-
140
-
-
116
Total loans with an allowance recorded
19,727
19,808
1,494
20,926
1,004
Total Impaired Loans:
Total mortgage loans
Total non-mortgage loans
$
$
120,830
7,780
$
$
139,052
9,356
$
$
1,245
249
$
$
147,277
8,417
$
$
2,699
194
101
In accordance with our policy and the current regulatory guidelines, we designate loans as “Special Mention,” which are
considered “Criticized Loans,” and “Substandard,” “Doubtful,” or “Loss,” which are considered “Classified Loans”. If a
loan does not fall within one of the previous mentioned categories then the loan would be considered “Pass.” These loan
designations are updated quarterly. We designate a loan as Substandard when a well-defined weakness is identified that
jeopardizes the orderly liquidation of the debt. We designate a loan Doubtful when it displays the inherent weakness of a
Substandard loan with the added provision that collection of the debt in full, on the basis of existing facts, is highly
improbable. We designate a loan as Loss if it is deemed the debtor is incapable of repayment. The Company does not
hold any loans designated as loss, as loans that are designated as Loss are charged to the Allowance for Loan Losses.
Loans that are non-accrual are designated as Substandard, Doubtful or Loss. We designate a loan as Special Mention if
the asset does not warrant classification within one of the other classifications, but does contain a potential weakness that
deserves closer attention.
The following table sets forth the recorded investment in loans designated as Criticized or Classified at December 31, 2013:
(In thousands)
Special Mention Substandard
Doubtful
Loss
Total
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Co-operative apartments
Construction loans
Small Business Administration
Commercial business and other
Total loans
$
$
9,940
13,503
7,992
2,848
-
746
310
7,314
42,653
$
$
19,089
16,820
14,898
14,026
59
-
-
8,450
73,342
$
$
-
-
-
-
-
-
-
50
50
$
$
-
-
-
-
-
-
-
-
-
$
$
29,029
30,323
22,890
16,874
59
746
310
15,814
116,045
The following table sets forth the recorded investment in loans designated as Criticized or Classified at December 31, 2012:
(In thousands)
Special Mention Substandard
Doubtful
Loss
Total
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Co-operative apartments
Construction loans
Small Business Administration
Commercial business and other
Total loans
$
$
16,345
11,097
13,104
5,223
103
3,805
323
3,044
53,044
$
$
22,769
27,877
26,506
15,328
237
10,598
212
18,419
121,946
$
$
-
-
-
-
-
-
244
1,080
1,324
$
$
-
-
-
-
-
-
-
-
-
$
$
39,114
38,974
39,610
20,551
340
14,403
779
22,543
176,314
102
The following table shows the activity in the allowance for loan losses for the years ended December 31:
Balance, beginning of year
Provision for loan losses
Charge-offs
Recoveries
Balance, end of year
2013
2012
(In thousands)
2011
$
31,104
13,935
(14,843)
1,580
$
30,344
21,000
(21,269)
1,029
$
27,699
21,500
(19,450)
595
$
31,776
$
31,104
$
30,344
The following are net loan charge-offs by loan type for the years ended December 31:
Multi-family residential
Commercial real estate
One-to-four family (cid:650) mixed-use property
One-to-four family (cid:650) residential
Co-operative apartments
Construction
Small Business Administration
Commercial business and other
2013
2012
(In thousands)
2011
$
$
$
3,044
727
3,940
429
104
2,678
370
1,971
5,872
2,439
3,928
1,554
62
4,591
237
1,557
6,654
4,988
2,521
2,163
-
1,088
811
630
Total net loan charge-offs
$
13,263
$
20,240
$
18,855
4. Loans held for sale
The Company has implemented a strategy of selling certain delinquent and non-performing loans. Once the Company
has decided to sell a loan, the sale usually will close in a short period of time, generally within the same quarter. Loans
designated held for sale are reclassified from loans held for investment to loans held for sale. Terms of sale include cash
due upon the closing of the sale, no contingencies or recourse to the Company and servicing is released to the buyer.
The following table shows delinquent and non-performing loans sold during the period indicated:
(Dollars in thousands)
Loans sold
Proceeds
Net charge-offs
Net gain (loss)
For the year ended
December 31, 2013
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
Construction
Commercial business and other
Total
$
$
11,420
5,488
11,427
5,066
-
$
(1,024)
(703)
(2,791)
(164)
(21)
$
33,401
$
(4,703)
$
99
6
(52)
-
-
53
21
9
39
2
1
72
103
The above table does not include one performing commercial real estate loan for $2.4 million which was sold for a net
gain of $0.2 million during the year ended December 31, 2013.
The following table shows delinquent and non-performing loans sold during the period indicated:
For the year ended
December 31, 2012
(Dollars in thousands)
Loans sold
Proceeds
Net charge-offs
Net gain (loss)
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
Construction
Commercial business and other
Total
34
11
25
3
4
77
$
$
21,429
5,869
8,270
2,540
6,115
$
(2,974)
(572)
(1,927)
(57)
(136)
$
44,223
$
(5,666)
$
(46)
-
-
-
8
(38)
The above table does not include $0.7 million of performing Small Business Administration loans that were sold for a
net gain of $60,000 during the year ended December 31, 2012.
The following table shows delinquent and non-performing loans sold during the period indicated:
For the year ended
December 31, 2011
(Dollars in thousands)
Loans sold
Proceeds
Net charge-offs
Net gain (loss)
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
Construction
Commercial business and other
Total
26
4
10
2
2
44
$
$
15,243
5,225
3,067
4,039
243
$
(2,767)
(367)
(514)
(3)
-
$
27,817
$
(3,651)
$
166
-
-
-
1
167
The above table does not include $3.9 million of performing Small Business Administration loans that were sold for a
net gain of $344,000 during the year ended December 31, 2011.
104
5. Other Real Estate Owned
The following table shows the activity in Other Real Estate Owned (“OREO”) during the periods indicated:
For the years ended
December 31,
2013
2012
2011
(In thousands)
$
$
$
5,278
5,369
(243)
(7,419)
3,179
6,127
(516)
(3,512)
$
1,588
7,286
(209)
(5,486)
2,985
$
5,278
$
3,179
Balance at beginning of year
Acquisitions
Reductions to carrying value
Sales
Balance at end of year
The following table shows the gross gains, gross losses and write-downs of OREO reported in the Consolidated
Statements of Income during the periods presented:
For the years ended
December 31,
2013
2012
2011
(In thousands)
Gross gains
Gross losses
Write-down of carrying value
Total
$
$
443
(89)
(243)
111
$
$
78
(255)
(516)
(693)
$
$
357
(135)
(209)
13
.
6. Debt and Equity Securities
The Company’s investments in equity securities that have readily determinable fair values and all investments in debt
securities are classified in one of the following three categories and accounted for accordingly: (1) trading securities, (2)
securities available for sale and (3) securities held-to-maturity.
The Company did not hold any trading securities or securities held-to-maturity during the years ended December 31,
2013 and 2012. Securities available for sale are recorded at fair value.
105
The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2013:
Gross
Unrealized
Losses
Gross
Unrealized
Gains
Amortized
Cost
Fair Value
Corporate
Municipals
Mutual funds
Other
Total other securities
REMIC and CMO
GNMA
FNMA
FHLMC
Total mortgage-backed securities
Total securities available for sale
(In thousands)
$
$
100,362
127,967
21,565
18,160
268,054
494,984
38,974
217,615
13,297
764,870
1,032,924
$
$
101,711
123,423
21,565
14,935
261,634
489,670
40,874
212,322
13,290
756,156
1,017,790
$
$
2,316
93
-
-
2,409
6,516
2,325
2,233
226
11,300
13,709
$
$
967
4,637
-
3,225
8,829
11,830
425
7,526
233
20,014
28,843
Mortgage-backed securities shown in the table above include two private issue collateralized mortgage obligations
(“CMO”) that are collateralized by commercial real estate mortgages with an amortized cost and market value of $13.9
million at December 31, 2013.
The following table shows the Company’s available for sale securities with gross unrealized losses and their fair value,
aggregated by category and length of time that individual securities have been in a continuous unrealized loss position, at
December 31, 2013.
Total
Less than 12 months
12 months or more
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
Corporate
Municipals
Other
Total other securities
REMIC and CMO
GNMA
FNMA
FHLMC
Total mortgage-backed securities
Total securities available for sale
$
(In thousands)
39,033
100,875
6,337
146,245
298,165
9,213
139,999
7,478
454,855
601,100
$
$
967
4,637
3,225
8,829
11,830
425
7,526
233
20,014
28,843
$
$
39,033
95,958
-
134,991
279,743
9,213
131,248
7,478
427,682
562,673
$
$
967
4,187
-
5,154
10,650
425
6,654
233
17,962
23,116
$
$
-
4,917
6,337
11,254
18,422
-
8,751
-
27,173
38,427
$
$
-
450
3,225
3,675
1,180
-
872
-
2,052
5,727
OTTI losses on impaired securities must be fully recognized in earnings if an investor has the intent to sell the debt
security or if it is more likely than not that the investor will be required to sell the debt security before recovery of its
amortized cost. However, even if an investor does not expect to sell a debt security, the investor must evaluate the
expected cash flows to be received and determine if a credit loss has occurred. In the event that a credit loss has
occurred, only the amount of impairment associated with the credit loss is recognized in earnings in the Consolidated
Statements of Income. Amounts relating to factors other than credit losses are recorded in accumulated other
comprehensive income (“AOCI”) within Stockholders’ Equity. Additional disclosures regarding the calculation of credit
losses as well as factors considered by the investor in reaching a conclusion that an investment is not other-than-
temporarily impaired are required.
The Company reviewed each investment that had an unrealized loss at December 31, 2013. An unrealized loss exists
when the current fair value of an investment is less than its amortized cost basis. Unrealized losses on available for sale
securities, that are deemed to be temporary, are recorded in AOCI, net of tax. Unrealized losses that are considered to be
other-than-temporary are split between credit related and noncredit related impairments, with the credit related
106
impairment being recorded as a charge against earnings and the noncredit related impairment being recorded in AOCI,
net of tax.
The Company evaluates its pooled trust preferred securities, included in the table above in the row labeled “Other”, using
an impairment model through an independent third party, which includes evaluating the financial condition of each
counterparty. For single issuer trust preferred securities, the Company evaluates the issuer’s financial condition. The
Company evaluates its mortgage-backed securities by reviewing the characteristics of the securities, including
delinquency and foreclosure levels, projected losses at various loss severity levels and credit enhancement and coverage.
In addition, private issue CMOs are evaluated using an impairment model through an independent third party. When an
OTTI is identified, the portion of the impairment that is credit related is determined by management by using the
following methods: (1) for trust preferred securities, the credit related impairment is determined by using a discounted
cash flow model from an independent third party, with the difference between the present value of the projected cash
flows and the amortized cost basis of the security recorded as a credit related loss against earnings; (2) for mortgage-
backed securities, credit related impairment is determined for each security by estimating losses based on a set of
assumptions, which includes delinquency and foreclosure levels, projected losses at various loss severity levels, credit
enhancement and coverage and (3) for private issue CMOs, through an impairment model from an independent third
party and then recording those estimated losses as a credit related loss against earnings.
Corporate:
The unrealized losses in Corporate securities at December 31, 2013 consist of losses on four Corporate securities. The
unrealized losses were caused by movements in interest rates. It is not anticipated that these securities would be settled at
a price that is less than the amortized cost of the Company’s investment. Each of these securities is performing according
to its terms and, in the opinion of management, will continue to perform according to its terms. The Company does not
have the intent to sell these securities and it is more likely than not the Company will not be required to sell the securities
before recovery of the securities’ amortized cost basis. This conclusion is based upon considering the Company’s cash
and working capital requirements and contractual and regulatory obligations, none of which the Company believes
would cause the sale of the securities. Therefore, the Company did not consider these investments to be other-than-
temporarily impaired at December 31, 2013.
Municipal Securities:
The unrealized losses in Municipal securities at December 31, 2013, consist of losses on 33 municipal securities. The
unrealized losses were caused by movements in interest rates. It is not anticipated that these securities would be settled at
a price that is less than the amortized cost of the Company’s investment. Each of these securities is performing according
to its terms and, in the opinion of management, will continue to perform according to its terms. The Company does not
have the intent to sell these securities and it is more likely than not the Company will not be required to sell the securities
before recovery of the securities amortized cost basis. This conclusion is based upon considering the Company’s cash
and working capital requirements and contractual and regulatory obligations, none of which the Company believes
would cause the sale of the securities. Therefore, the Company did not consider these investments to be other-than-
temporarily impaired at December 31, 2013.
Other Securities:
The unrealized losses in Other Securities at December 31, 2013, consist of losses on one single issuer trust preferred
security and two pooled trust preferred securities. The unrealized losses on such securities were caused by market
interest volatility, a significant widening of credit spreads across markets for these securities and illiquidity and
uncertainty in the financial markets. These securities are currently rated below investment grade. The pooled trust
preferred securities do not have collateral that is subordinate to the classes the Company owns. The Company’s
management evaluates these securities using an impairment model, through an independent third party, that is applied to
debt securities. In estimating OTTI losses, management considers: (1) the length of time and the extent to which the fair
value has been less than amortized cost; (2) the current interest rate environment; (3) the financial condition and near-
term prospects of the issuer, if applicable; and (4) the intent and ability of the Company to retain its investment in the
security for a period of time sufficient to allow for any anticipated recovery in fair value. Additionally, management
reviews the financial condition of each individual issuer within the pooled trust preferred securities. All of the issuers of
the underlying collateral of the pooled trust preferred securities we reviewed are banks.
For each bank, our review included the following performance items of the banks:
Ratio of tangible equity to assets
Tier 1 Risk Weighted Capital
Net interest margin
107
Efficiency ratio for most recent two quarters
Return on average assets for most recent two quarters
Texas Ratio (ratio of non-performing assets plus assets past due over 90 days divided by tangible equity plus the
reserve for loan losses)
Credit ratings (where applicable)
Capital issuances within the past year (where applicable)
Ability to complete Federal Deposit Insurance Corporation (“FDIC”) assisted acquisitions (where applicable)
Based on the review of the above factors, we concluded that:
All of the performing issuers in our pools are well capitalized banks, and do not appear likely to be closed by
their regulators.
All of the performing issuers in our pools will continue as a going concern and will not default on their
securities.
In order to estimate potential future defaults and deferrals, we segregated the performing underlying issuers by their
Texas Ratio. We then reviewed performing issuers with Texas Ratios in excess of 50%. The Texas Ratio is a key
indicator of the health of the institution and the likelihood of failure. This ratio compares the problem assets of the
institution to the institution’s available capital and reserves to absorb losses that are likely to occur in these assets. There
was one issuer in our pooled trust preferred securities which had a Texas Ratio in excess of 50%. We assigned a 25%
default rate to this issuer. All other issuers in our pooled trust preferred securities had a Texas Ratio below 50%. We
assigned a zero percent default rate to these issuers. Our analysis also assumed that issuers currently deferring would
default with no recovery, and issuers that have defaulted will have no recovery.
We had an independent third party prepare a discounted cash flow analysis for each of these pooled trust preferred
securities based on the assumptions discussed above. Other significant assumptions were: (1) two issuers totaling $26.7
million will prepay in the first quarter of 2014; (2) two issuers totaling $21.5 million will prepay in the second quarter of
2015; (3) senior classes will not call the debt on their portions; and (4) use of the forward London Interbank Offered Rate
(“LIBOR”) curve. The cash flows were discounted at the effective rate for each security.
The Company also owns a pooled trust preferred security that is carried under the fair value option, where the unrealized
losses are included in the Consolidated Statements of Income – Net gain (loss) from fair value adjustments.
It is not anticipated at this time that the one single issuer trust preferred security and the two pooled trust preferred
securities would be settled at a price that is less than the amortized cost of the Company’s investment. Each of these
securities is performing according to its terms and, in the opinion of management based on the review performed at
December 31, 2013, will continue to perform according to its terms. The Company does not have the intent to sell these
securities and it is more likely than not the Company will not be required to sell the securities before recovery of the
securities’ amortized cost basis. This conclusion is based upon considering the Company’s cash and working capital
requirements and contractual and regulatory obligations, none of which the Company believes would cause the sale of
the securities. Therefore, the Company did not consider the one single issuer trust preferred security and the two pooled
trust preferred securities to be other-than-temporarily impaired at December 31, 2013.
At December 31, 2013, the Company held five trust preferred issues which had a current credit rating of at least one
rating below investment grade. Two of those issues are carried under the fair value option and therefore, changes in fair
value are included in the Consolidated Statement of Income – Net gain (loss) from fair value adjustments.
108
The following table details the remaining three trust preferred issues that were evaluated to determine if they were other-
than-temporarily impaired at December 31, 2013. The class the Company owns in pooled trust preferred securities does
not have any excess subordination.
IIssuer
TType
Class
Performing
Banks
Amortized
Cost
Fair
Value
Deferrals/Defaults
Actual as a
Percentage
of Original
Security
Expected
Percentage
oof Performing
Collateral
Current
Lowest
Rating
Cumulative
Credit Related
OTTI
(Dollars in thousands)
Single issuer
Pooled issuer
Pooled issuer
Total
n/a
B1
C1
1
16
16
300
5,617
3,645
9,562
$
287
3,200
2,850
6,337
$
-
2,196
1,542
3,738
$
None
23.4%
21.3%
None
0.0%
1.5%
BB-
C
C
REMIC and CMO:
The unrealized losses in Real Estate Mortgage Investment Conduit (“REMIC”) and CMO securities at December 31,
2013 consist of 15 issues from the Federal Home Loan Mortgage Corporation (“FHLMC”), 17 issues from the Federal
National Mortgage Association (“FNMA”) and seven issues from Government National Mortgage Association
(“GNMA”).
The unrealized losses on the REMIC and CMO securities issued by FHLMC FNMA and GNMA were caused by
movements in interest rates. It is not anticipated that these securities would be settled at a price that is less than the
amortized cost of the Company’s investment. Each of these securities is performing according to its terms, and, in the
opinion of management, will continue to perform according to its terms. The Company does not have the intent to sell
these securities and it is more likely than not the Company will not be required to sell the securities before recovery of
the securities amortized cost basis. This conclusion is based upon considering the Company’s cash and working capital
requirements, and contractual and regulatory obligations, none of which the Company believes would cause the sale of
the securities. Therefore, the Company did not consider these investments to be other-than-temporarily impaired at
December 31, 2013.
Credit related impairment for mortgage-backed securities are determined for each security by estimating losses based on
the following set of assumptions: (1) delinquency and foreclosure levels; (2) projected losses at various loss severity
levels; and (3) credit enhancement and coverage. Based on these reviews, a credit related OTTI charge was recorded
during the year ended December 31, 2013 on four private issue CMOs of $1.4 million. The Company recorded credit
related OTTI charges totaling $0.8 million on five private issue CMOs during the year ended December 31, 2012 and
$1.6 million on four private issue CMOs during the year ended December 31, 2011.
The portion of the above mentioned OTTI, recorded during the year ended December 31, 2013, that was related to credit
losses was calculated using the following significant assumptions: (1) delinquency and foreclosure levels of 7%-24%;
(2) projected loss severity of 40%-50%; (3) assumed default rates of 6%-12% for the first 12 months, 2%-10% for the
next 12 months, 2%-8% for the next six months, 2%-6% for the next six months and 2%-4% for the next 12 months and
2% thereafter; and (4) prepayment speeds of 6%-10%.
The private issue CMOs which incurred the above credit related OTTI charges were sold during the year ended
December 31, 2013 for proceeds of $18.3 million realizing a loss on sale of $1.7 million.
GNMA:
The unrealized losses in GNMA securities at December 31, 2013 consist of losses on one security. The unrealized losses
were caused by movements in interest rates. It is not anticipated that this security would be settled at a price that is less
than the amortized cost of the Company’s investment. This security is performing according to its terms and, in the
opinion of management, will continue to perform according to its terms. The Company does not have the intent to sell
this security and it is more likely than not the Company will not be required to sell the security before recovery of the
security’s amortized cost basis. This conclusion is based upon considering the Company’s cash and working capital
requirements and contractual and regulatory obligations, none of which the Company believes would cause the sale of
the security. Therefore, the Company did not consider this security to be other-than-temporarily impaired at December
31, 2013.
109
FNMA:
The unrealized losses in FNMA securities at December 31, 2013 consist of losses on 19 securities. The unrealized losses
were caused by movements in interest rates. It is not anticipated that these securities would be settled at a price that is
less than the amortized cost of the Company’s investment. Each of these securities is performing according to its terms
and, in the opinion of management, will continue to perform according to its terms. The Company does not have the
intent to sell these securities and it is more likely than not the Company will not be required to sell the securities before
recovery of the securities amortized cost basis. This conclusion is based upon considering the Company’s cash and
working capital requirements and contractual and regulatory obligations, none of which the Company believes will cause
the sale of the securities. Therefore, the Company did not consider these investments to be other-than-temporarily
impaired at December 31, 2013.
FHMLC:
The unrealized losses in FHMLC securities at December 31, 2013 consist of losses on one security. The unrealized
losses were caused by movements in interest rates. It is not anticipated that this security would be settled at a price that is
less than the amortized cost of the Company’s investment. This security is performing according to its terms and, in the
opinion of management, will continue to perform according to its terms. The Company does not have the intent to sell
this security and it is more likely than not the Company will not be required to sell the security before recovery of the
security’s amortized cost basis. This conclusion is based upon considering the Company’s cash and working capital
requirements and contractual and regulatory obligations, none of which the Company believes would cause the sale of
the security. Therefore, the Company did not consider this security to be other-than-temporarily impaired at December
31, 2013.
The following table details gross unrealized losses recorded in AOCI and the ending credit loss amount on debt
securities, as of December 31, 2013, for which the Company has recorded a credit related OTTI charge in the
Consolidated Statements of Income:
(in thousands)
Amortized Cost
Fair Value
Gross Unrealized
Losses Recorded
In AOCI
Ending Credit
Loss Amount
Trust preferred securities (1)
Total
$
$
9,262
9,262
$
$
6,050
6,050
$
$
3,212
3,212
$
$
3,738
3,738
(1) The Company has recorded OTTI charges in the Consolidated Statements of Income on two pooled trust
preferred securities for which a portion of the OTTI is currently recorded in AOCI.
The following table represents the activity related to the credit loss component recognized in earnings on debt securities
held by the Company for which a portion of OTTI was recognized in AOCI for the periods indicated:
Beginning balance
For the years ended
December 31,
2013
2012
2011
$
6,178
(In thousands)
6,922
$
$
7,011
Recognition of actual losses
OTTI charges due to credit loss recorded in earnings
Securities sold during the period
Securities where there is an intent to sell or requirement to sell
(842)
1,419
(3,017)
-
(1,271)
776
(249)
-
(1,667)
1,578
-
-
Ending balance
$
3,738
$
6,178
$
6,922
110
The amortized cost and estimated fair value of the Company’s securities, classified as available for sale at December 31,
2013, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total other securities
Mortgage-backed securities
Amortized
Cost
Fair Value
(In thousands)
$
32,424
30,945
64,075
140,610
268,054
764,870
$
32,561
32,462
63,367
133,244
261,634
756,156
Total securities available for sale
$
1,032,924
$
1,017,790
The following table represents the gross gains and gross losses realized from the sale of securities available for sale for
the periods indicated:
Gross gains from the sale of securities
Gross losses from the sale of securities
Net gains from the sale of securities
For the years ended
December 31,
2013
2012
2011
(In thousands)
154
(107)
$
5,222
(2,201)
3,021
$
47
$
$
$
$
-
-
-
111
The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2012:
Gross
Unrealized
Losses
Gross
Unrealized
Gains
Amortized
Cost
Fair Value
U.S. government agencies
Corporate
Municipals
Mutual funds
Other
Total other securities
REMIC and CMO
GNMA
FNMA
FHLMC
Total mortgage-backed securities
Total securities available for sale
(In thousands)
$
$
31,409
83,389
74,228
21,843
17,797
228,666
453,468
43,211
168,040
22,562
687,281
915,947
$
$
31,513
87,485
75,297
21,843
13,315
229,453
474,050
46,932
175,929
23,202
720,113
949,566
$
$
104
4,096
1,152
-
17
5,369
23,690
3,721
7,971
640
36,022
41,391
$
$
-
-
83
-
4,499
4,582
3,108
-
82
-
3,190
7,772
Mortgage-backed securities shown in the table above include two private issue collateralized mortgage obligations
(“CMO”) that are collateralized by commercial real estate mortgages with an amortized cost and market value of $15.2
million and $15.7 million, respectively, at December 31, 2012. The remaining private issue mortgage-backed securities
are backed by one-to-four family residential mortgage loans.
The following table shows the Company’s available for sale securities with gross unrealized losses and their fair value,
aggregated by category and length of time that individual securities have been in a continuous unrealized loss position, at
December 31, 2012.
Total
Less than 12 months
12 months or more
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
Municipals
Other
Total other securities
REMIC and CMO
FNMA
Total mortgage-backed securities
Total securities available for sale
$
(In thousands)
9,782
5,064
14,846
64,126
10,331
74,457
89,303
$
$
83
4,499
4,582
3,108
82
3,190
7,772
$
$
9,782
-
9,782
40,651
10,331
50,982
60,764
$
$
83
-
83
155
82
237
320
$
$
-
5,064
5,064
23,475
-
23,475
28,539
$
$
-
4,499
4,499
2,953
-
2,953
7,452
Municipal Securities:
The unrealized losses in Municipal securities at December 31, 2012, consisted of losses on four municipal securities. The
unrealized losses were caused by movements in interest rates. It was not anticipated that these securities would be settled
at a price that was less than the amortized cost of the Company’s investment. Each of these securities was performing
according to its terms and, in the opinion of management, would continue to perform according to its terms. The
Company did not have the intent to sell these securities and it was more likely than not the Company would not be
required to sell the securities before recovery of the securities amortized cost basis. This conclusion was based upon
considering the Company’s cash and working capital requirements and contractual and regulatory obligations, none of
which the Company believed would cause the sale of the securities. Therefore, the Company did not consider these
investments to be other-than-temporarily impaired at December 31, 2012.
Other Securities:
The unrealized losses in Other Securities at December 31, 2012, consisted of losses on one single issuer trust preferred
security and two pooled trust preferred securities. The unrealized losses on such securities were caused by market
112
interest volatility, a significant widening of credit spreads across markets for these securities and illiquidity and
uncertainty in the financial markets. These securities were rated below investment grade. The pooled trust preferred
securities did not have collateral that was subordinate to the classes the Company owns. The Company’s management
evaluated these securities using an impairment model, through an independent third party, that was applied to debt
securities. In estimating OTTI losses, management considered: (1) the length of time and the extent to which the fair
value had been less than amortized cost; (2) the current interest rate environment; (3) the financial condition and near-
term prospects of the issuer, if applicable; and (4) the intent and ability of the Company to retain its investment in the
security for a period of time sufficient to allow for any anticipated recovery in fair value. Additionally, management
reviewed the financial condition of each individual issuer within the pooled trust preferred securities. All of the issuers of
the underlying collateral of the pooled trust preferred securities we reviewed are banks.
For each bank, our review included the following performance items of the banks:
Ratio of tangible equity to assets
Tier 1 Risk Weighted Capital
Net interest margin
Efficiency ratio for most recent two quarters
Return on average assets for most recent two quarters
Texas Ratio (ratio of non-performing assets plus assets past due over 90 days divided by tangible equity plus the
reserve for loan losses)
Credit ratings (where applicable)
Capital issuances within the past year (where applicable)
Ability to complete Federal Deposit Insurance Corporation (“FDIC”) assisted acquisitions (where applicable)
Based on the review of the above factors, we concluded that:
All of the performing issuers in our pools are well capitalized banks, and do not appear likely to be closed by
their regulators.
All of the performing issuers in our pools will continue as a going concern and will not default on their
securities.
In order to estimate potential future defaults and deferrals, we segregated the performing underlying issuers by their
Texas Ratio. The Texas Ratio is a key indicator of the health of the institution and the likelihood of failure. This ratio
compares the problem assets of the institution to the institution’s available capital and reserves to absorb losses that are
likely to occur in these assets. There were no issuers in our pooled trust preferred securities which had a Texas Ratio in
excess of 50%. We assigned a zero default rate to these issuers. Our analysis also assumed that issuers currently
deferring would default with no recovery, and issuers that have defaulted will have no recovery.
We had an independent third party prepare a discounted cash flow analysis for each of these pooled trust preferred
securities based on the assumptions discussed above. Other significant assumptions were: (1) two issuers totaling $21.5
million will prepay in five years and two issuers totaling $18.7 million will prepay at their next quarterly payment date;
(2) senior classes will not call the debt on their portions; and (3) use of the forward London Interbank Offered Rate
(“LIBOR”) curve. The cash flows were discounted at the effective rate for each security.
One of the pooled trust preferred securities was over 90 days past due and the Company has stopped accruing interest.
The remaining pooled trust preferred security, as well as the single issuer trust preferred security, was performing
according to their terms. Based on these reviews, a credit related OTTI charge was not recorded on the single issuer trust
preferred security or the two pooled trust preferred securities during the year ended December 31, 2012.
The Company also owns a pooled trust preferred security that is carried under the fair value option, where the unrealized
losses are included in the Consolidated Statements of Income. This security was over 90 days past due and the Company
has stopped accruing interest.
It was not anticipated at the time that the one single issuer trust preferred security and the two pooled trust preferred
securities, would be settled at a price that was less than the amortized cost of the Company’s investment. Each of these
securities was performing according to its terms; except for the pooled trust preferred securities for which the Company
had stopped accruing interest as discussed above, and, in the opinion of management based on the review performed at
December 31, 2012, would continue to perform according to its terms. The Company did not have the intent to sell these
113
securities and it was more likely than not the Company would not be required to sell the securities before recovery of the
securities amortized cost basis. This conclusion was based upon considering the Company’s cash and working capital
requirements, and contractual and regulatory obligations, none of which the Company believed would cause the sale of
the securities. Therefore, the Company did not consider one single issuer trust preferred securities and the two pooled
trust preferred securities to be other-than-temporarily impaired at December 31, 2012.
7. Bank Premises and Equipment, Net
Bank premises and equipment are as follows at December 31:
Land
Building and leasehold improvements
Equipment and furniture
Total
Less: Accumulated depreciation and amortization
Bank premises and equipment, net
8. Deposits
2013
2012
(In thousands)
$
$
3,551
22,464
18,219
44,234
23,878
20,356
$
$
3,551
22,128
18,068
43,747
21,247
22,500
Total deposits at December 31, 2013 and 2012, and the weighted average rate on deposits at December 31, 2013, are as
follows:
Interest-bearing deposits:
Certificate of deposit accounts
Savings accounts
Money market accounts
NOW accounts
Total interest-bearing deposits
Non-interest bearing demand deposits
Total due to depositors
Mortgagors' escrow deposits
Total deposits
2013
2012
(Dollars in thousands)
$
$
1,120,955
265,003
199,907
1,416,774
3,002,639
197,343
3,199,982
32,798
3,232,780
$
$
1,253,229
288,398
148,618
1,136,599
2,826,844
155,789
2,982,633
32,560
3,015,193
Weighted
Average
Rate
2013
2.01 %
0.19
0.21
0.50
0.08
The aggregate amount of time deposits with denominations of $100,000 or more (excluding brokered deposits issued in
$1,000.00 amounts under a master certificate of deposit) was $335.4 million and $393.7 million at December 31, 2013
and 2012, respectively. The aggregate amount of brokered deposits was $517.4 million and $522.1 million at December
31, 2013 and 2012, respectively.
Deposits obtained from the governmental division are collateralized by securities or letters of credit issued by FHLB-
NY. The letters of credit are collateralized by mortgage loans pledged by the Bank.
At December 31, 2013, there were $407.4 million in securities and $517.8 million of letters of credit pledged as
collateral for $867.1 million in government deposits. At December 31, 2012, there were $439.5 million in securities and
$414.6 million of letters of credit pledged as collateral for $697.0 million in government deposits.
114
Interest expense on deposits is summarized as follows for the years ended December 31:
Certificate of deposit accounts
Savings accounts
Money market accounts
NOW accounts
Total due to depositors
Mortgagors' escrow deposits
Total interest expense on deposits
2013
2012
(In thousands)
2011
24,414
515
294
6,777
32,000
37
32,037
$
$
32,983
689
399
6,275
40,346
36
40,382
$
$
38,372
2,091
1,309
6,610
48,382
49
48,431
$
$
Scheduled remaining maturities of certificate of deposit accounts are summarized as follows for the years ended
December 31:
Within 12 months
More than 12 months to 24 months
More than 24 months to 36 months
More than 36 months to 48 months
More than 48 months to 60 months
More than 60 months
Total certificate of deposit accounts
2013
2012
(In thousands)
$
$
459,016
318,215
158,050
51,508
108,487
25,677
1,120,953
$
$
410,054
418,956
248,590
111,054
33,046
31,529
1,253,229
115
9. Borrowed Funds and Securities Sold Under Agreements to Repurchase
Borrowed funds and securities sold under agreements to repurchase are summarized as follows at December 31:
Repurchase agreements - fixed rate:
Due in 2013
Due in 2014
Due in 2016
Due in 2017
Due in 2020
Total repurchase agreements - fixed rate
FHLB-NY advances - fixed rate:
Due in 2013
Due in 2014
Due in 2015
Due in 2016
Due in 2017
Due in 2018
Total FHLB-NY advances - fixed rate
Junior subordinated debentures - adjustable rate
Due in 2037
Total borrowings
2013
2012
Weighted
Average
Rate
Amount
Weighted
Average
Rate
Amount
(Dollars in thousands)
-
9,300
68,000
38,000
40,000
155,300
-
89,500
166,732
331,062
174,160
65,798
827,252
29,570
%
-
1.27
3.27
4.16
3.45
3.41
-
0.63
1.21
1.20
2.79
1.24
1.48
5.67
30,000
9,300
88,000
58,000
-
2.92 %
1.27
3.42
4.19
-
185,300
3.47
142,000
129,911
166,349
158,636
142,287
-
739,183
23,922
0.40
2.07
1.21
1.53
3.24
-
1.66
6.92
$
1,012,122
1.90 %
$
948,405
2.15 %
116
Borrowings which have call provisions are summarized as follows at December 31, 2013:
Amount
Rate
Maturity Date
Call Date
FHLB-NY advances - fixed rate
FHLB-NY advances - fixed rate
FHLB-NY advances - fixed rate
FHLB-NY advances - fixed rate
FHLB-NY advances - fixed rate
Repurchase agreements - fixed rate
Repurchase agreements - fixed rate
Repurchase agreements - fixed rate
Repurchase agreements - fixed rate
Repurchase agreements - fixed rate
Repurchase agreements - fixed rate
Repurchase agreements - fixed rate
Repurchase agreements - fixed rate
Repurchase agreements - fixed rate
$
20,000
30,000
10,000
10,000
10,000
20,000
18,000
10,000
20,000
20,000
18,000
20,000
10,000
10,000
(Dollars in thousands)
4.43
4.60
4.13
4.32
4.15
3.76
4.28
4.89
5.02
4.05
1.60
2.20
3.08
3.19
10/10/2017
10/10/2017
9/18/2017
9/18/2017
9/18/2017
8/1/2020
10/18/2017
7/28/2016
7/28/2016
9/19/2017
4/19/2016
7/12/2016
8/1/2020
2/1/2020
1/9/2014
1/9/2014
3/17/2014
3/17/2014
3/18/2014
2/1/2016
1/21/2014
1/28/2014
1/28/2014
3/19/2014
4/21/2014
7/14/2014
2/1/2016
2/1/2016
As part of the Company’s strategy to finance investment opportunities and manage its cost of funds, the Company enters
into repurchase agreements with broker-dealers and the FHLB-NY. These agreements are recorded as financing
transactions and the obligations to repurchase are reflected as a liability in the consolidated financial statements. The
securities underlying the agreements were delivered to the broker-dealers or the FHLB-NY who arranged the transaction.
The securities remain registered in the name of the Company and are returned upon the maturity of the agreement. The
Company retains the right of substitution of collateral throughout the terms of the agreements. All the repurchase
agreements are collateralized by mortgage-backed securities. Information relating to these agreements at or for the years
ended December 31 is as follows:
Book value of collateral
Estimated fair value of collateral
Average balance of outstanding agreements during the year
Maximum balance of outstanding agreements at a month end during the year
Average interest rate of outstanding agreements during the year
2013
2012
(Dollars in thousands)
$
$
199,447
199,447
172,944
185,300
3.42%
228,620
228,620
185,300
185,300
3.62%
Pursuant to a blanket collateral agreement with the FHLB-NY, advances are secured by all of the Bank’s stock in the
FHLB-NY and certain qualifying mortgage loans in an amount at least equal to 110% of the advances outstanding. The
Bank may also pledge mortgage-backed and mortgage-related securities, and other securities not otherwise pledged.
The Holding Company has three trusts formed under the laws of the State of Delaware for the purpose of issuing capital
and common securities, and investing the proceeds thereof in junior subordinated debentures of the Holding Company.
Each of these trusts issued $20.6 million of securities which had a fixed-rate for the first five years, after which they reset
quarterly based on a spread over 3-month LIBOR. The securities were first callable at par after five years, and pay
cumulative dividends. The Holding Company has guaranteed the payment of these trusts’ obligations under their capital
securities. The terms of the junior subordinated debentures are the same as those of the capital securities issued by the
trusts. The junior subordinated debentures issued by the Holding Company are carried at fair value in the consolidated
financial statements.
117
The table below shows the terms of the securities issued by the trusts.
Issue Date
Initial Rate
First Reset Date
Spread over 3-month LIBOR
Maturity Date
Flushing Financial
Capital Trust II
Flushing Financial
Capital Trust III
Flushing Financial
Capital Trust IV
June 20, 2007
7.14%
September 1, 2012
1.41%
September 1, 2037
June 21, 2007
6.89%
June 15, 2012
1.44%
September 15, 2037
July 3, 2007
6.85%
July 30,2012
1.42%
July 30, 2037
The consolidated financial statements do not include the securities issued by the trusts, but rather include the junior
subordinated debentures of the Holding Company.
10. Income Taxes
Flushing Financial Corporation files consolidated Federal and combined New York State and New York City income tax
returns with its subsidiaries, with the exception of the trusts, which file separate Federal income tax returns as trusts, and
FPFC, which files a separate Federal income tax return as a real estate investment trust. The Company remains subject to
examination for its Federal and New York State income tax returns for the years ending on or after December 31, 2010
and for its New York City income tax returns for years ending on or after December 31, 2011. During the three years
ended December 31, 2013, the Company did not recognize any material amounts of interest or penalties on income taxes.
The Company’s annual tax liability for New York State and New York City was the greater of a tax based on “entire net
income,” “alternative entire net income,” “taxable assets” or a minimum tax. For the years ended December 31, 2013,
2012 and 2011, the Company’s state and city tax were based on “entire net income.”
Income tax provisions are summarized as follows for the years ended December 31:
Federal:
Current
Deferred
Total federal tax provision
State and Local:
Current
Deferred
Total state and local tax provision
Total income tax provision
2013
2012
(In thousands)
2011
$
$
17,808
(464)
17,344
5,828
(216)
5,612
22,956
$
$
17,330
(590)
16,740
5,321
(214)
5,107
21,847
$
$
17,314
435
17,749
5,470
250
5,720
23,469
118
The income tax provision in the Consolidated Statements of Income has been provided at effective rates of 37.8%,
38.9% and 39.9% for the years ended December 31, 2013, 2012 and 2011, respectively. The effective rates differ from
the statutory federal income tax rate as follows for the years ended December 31:
Taxes at federal statutory rate
Increase (reduction) in taxes resulting from:
State and local income tax, net of Federal
2013
2012
(Dollars in thousands)
2011
$
21,248
35.0 %
$
19,662
35.0 %
$
20,586
35.0 %
income tax benefit
Other
Taxes at effective rate
3,648
(1,940)
22,956
$
6.0
(3.2)
37.8 %
3,320
(1,135)
21,847
$
5.9
(2.0)
38.9 %
3,718
(835)
23,469
$
6.3
(1.4)
39.9 %
The components of the income taxes attributable to income from operations and changes in equity are as follows for the
years ended December 31:
Income from operations
Equity:
Change in fair value of securities available for sale
Current year actuarial gains (losses) of postretirement plans
Amortization of net actuarial losses and prior service credits
Compensation expense for tax purposes in (excess) or less
than that recognized for financial reporting purposes
Total income taxes
2013
$
22,956
2012
(In thousands)
21,847
$
2011
$
23,469
(21,309)
2,527
521
5,577
(340)
436
8,398
(1,932)
223
(443)
4,252
303
27,823
$
(292)
29,866
$
$
119
The components of the net deferred tax assets (liabilities) are as follows at December 31:
Deferred tax asset:
Postretirement benefits
Allowance for loan losses
Stock based compensation
Depreciation
Unrealized loss on securities available for sale
Fair value adjustment on financial assets carried
at fair value
Other-than-temporary impairment charges
Adjustment required to recognize funded status of
postretirement pension plans
Other
Deferred tax asset
Deferred tax liability:
Core deposit intangibles
Valuation differences resulting from acquired
assets and liabilities
Fair value adjustment on financial liabilities carried
at fair value
Unrealized gains on securities available for sale
Other
Deferred tax liability
$
2013
2012
(In thousands)
$
4,880
13,895
2,322
1,400
6,612
2,470
1,584
2,218
2,336
37,717
-
2,805
14,910
-
1,898
19,613
4,114
13,592
2,373
1,212
-
3,152
2,700
5,266
1,991
34,400
205
2,849
15,781
14,697
1,705
35,237
Net deferred tax (liability) asset included in other (liabilities) assets
$
18,104
$
(837)
The Company has recorded a deferred tax asset of $37.7 million. This represents the anticipated net federal, state and
local tax benefits expected to be realized in future years upon the utilization of the underlying tax attributes comprising
this balance. The Company has reported taxable income for federal, state, and local tax purposes in each of the past three
years. In management’s opinion, in view of the Company’s previous, current and projected future earnings trend, the
probability that some of the Company’s $19.6 million deferred tax liability can be used to offset a portion of the deferred
tax asset, as well as certain tax planning strategies, it is more likely than not that the deferred tax asset will be fully
realized. Accordingly, no valuation allowance was deemed necessary for the deferred tax asset at December 31, 2013
and 2012.
The Company does not have uncertain tax positions that are deemed material. The Company’s policy is to recognize
interest and penalties on income taxes in operating expenses. During the three years ended December 31, 2013, the
Company did not recognize any material amounts of interest or penalties on income taxes.
11. Stock Based Compensation
For the years ended December 31, 2013, 2012 and 2011 the Company’s net income, as reported, includes $3.4 million,
$3.3 million and $2.7 million, respectively, of stock-based compensation costs and $1.3 million, $1.3 million and $1.1
million, respectively, of income tax benefits related to the stock-based compensations plans.
The Company estimates the fair value of stock options using the Black-Scholes valuation model that uses the
assumptions noted in the table below. Key assumptions used to estimate the fair value of stock options include the
exercise price of the award, the expected option term, the expected volatility of the Company’s stock price, the risk-free
interest rate over the options’ expected term and the annual dividend yield. The Company uses the fair value of the
common stock on the date of award to measure compensation cost for restricted stock and restricted stock unit awards.
Compensation cost is recognized over the vesting period of the award, using the straight line method. There were no
stock options granted for the years ended December 31, 2013, 2012 and 2011. There were 246,045, 230,675 and 214,095
restricted stock units granted for the years ended December 31, 2013, 2012 and 2011, respectively.
120
The 2005 Omnibus Incentive Plan (“Omnibus Plan”) became effective on May 17, 2005 after approval by the
stockholders. The Omnibus Plan authorizes the Compensation Committee of the Company’s Board of Directors (the
“Compensation Committee”) to grant a variety of equity compensation awards as well as long-term and annual cash
incentive awards, all of which can be structured so as to comply with Section 162(m) of the Internal Revenue Code of
1986, as amended (the “Internal Revenue Code”). On May 17, 2011, stockholders approved an amendment to the
Omnibus Plan authorizing an additional 625,000 shares available for use for full value awards. As of December 31,
2013, there are 374,658 shares available for full value awards and 56,920 shares available for non-full value awards. To
satisfy stock option exercises or fund restricted stock and restricted stock unit awards, shares are issued from treasury
stock, if available, otherwise new shares are issued. The Company maintains separate pools of available shares for full
value as opposed to non-full value awards, except that shares can be moved from the non-full value pool to the full value
pool on a 3-for-1 basis. The exercise price per share of a stock option grant may not be less than the fair market value of
the common stock of the Company, as defined in the Omnibus Plan, on the date of grant and may not be re-priced
without the approval of the Company’s stockholders. Options, stock appreciation rights, restricted stock, restricted stock
units and other stock based awards granted under the Omnibus Plan are generally subject to a minimum vesting period of
three years with stock options having a 10-year contractual term. Other awards do not have a contractual term of
expiration. Restricted stock unit awards include participants who have reached or are close to reaching retirement
eligibility, at which time such awards fully vest. These amounts are included in stock-based compensation expense.
Full Value Awards: The first pool is available for full value awards, such as restricted stock unit awards. The pool will
be decreased by the number of shares granted as full value awards. The pool will be increased from time to time by: (1)
the number of shares that are returned to or retained by the Company as a result of the cancellation, expiration, forfeiture
or other termination of a full value award (under the Omnibus Plan); (2) the settlement of such an award in cash; (3) the
delivery to the award holder of fewer shares than the number underlying the award, including shares which are withheld
from full value awards: or (4) the surrender of shares by an award holder in payment of the exercise price or taxes with
respect to a full value award. The Omnibus Plan will allow the Company to transfer shares from the non-full value pool
to the full value pool on a 3-for-1 basis, but does not allow the transfer of shares from the full value pool to the non-full
value pool.
The following table summarizes the Company’s full value awards at or for the year ended December 31, 2013:
Full Value Awards
Non-vested at December 31, 2012
Granted
Vested
Forfeited
Non-vested at December 31, 2013
Vested but unissued at December 31, 2013
Weighted-Average
Grant-Date
Fair Value
$
$
$
13.35
15.30
14.42
14.25
14.08
14.18
Shares
318,051
246,045
(187,875)
(29,637)
346,584
215,439
As of December 31, 2013, there was $3.5 million of total unrecognized compensation cost related to non-vested full
value awards granted under the Omnibus Plan. That cost is expected to be recognized over a weighted-average period of
3.0 years. The total fair value of awards vested for the years ended December 31, 2013, 2012 and 2011 were $2.9
million, $3.3 million and $1.8 million, respectively. The vested but unissued full value awards consist of awards made
to employees and directors who are eligible for retirement. According to the terms of the Omnibus Plan, these employees
and directors have no risk of forfeiture. These shares will be issued at the original contractual vesting dates.
Non-Full Value Awards: The second pool is available for non-full value awards, such as stock options. The pool will be
increased from time to time by the number of shares that are returned to or retained by the Company as a result of the
cancellation, expiration, forfeiture or other termination of a non-full value award (under the Omnibus Plan or the 1996
Stock Option Incentive Plan). The second pool will not be replenished by shares withheld or surrendered in payment of
the exercise price or taxes, retained by the Company as a result of the delivery to the award hold of fewer shares than the
number underlying the award, or the settlement of the award in cash.
121
The following table summarizes certain information regarding the non-full value awards, all of which have been granted
as stock options, at or for the year ended December 31, 2013:
Non-Full Value Awards
Shares
Weighted-
Average
Exercise
Price
Weighted-Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
($000) *
Outstanding at December 31, 2012
Granted
Exercised
Forfeited
Outstanding at December 31, 2013
Exercisable shares at December 31, 2013
Vested but unexercisable shares at
December 31, 2013
770,355
-
(463,245)
(480)
306,630
284,390
8,160
$
$
$
$
15.92
-
15.86
15.27
16.02
16.61
3.1 years
3.0 years
8.44
5.1 years
$
$
$
1,436
1,164
100
* The intrinsic value of a stock option is the difference between the market value of the underlying stock and the exercise
price of the option.
As of December 31, 2013, there was $1,000 of total unrecognized compensation cost related to unvested non-full value
awards granted under the Omnibus Plan. That cost is expected to be recognized over a weighted-average period of 0.1
years. The vested but unexercisable non-full value awards were made to employees who are eligible for retirement.
According to the terms of the Omnibus Plan, these employees and directors have no risk of forfeiture. These shares will
be exercisable at the original contractual vesting dates.
Cash proceeds, fair value received, tax benefits, and intrinsic value related to stock options exercised, and the weighted
average grant date fair value for options granted, during the years ended December 31, 2013, 2012 and 2011 are
provided in the following table:
(In thousands, except grant date fair value)
Proceeds from stock options exercised
Fair value of shares received upon exercise of stock options
Tax benefit related to stock options exercised
Intrinsic value of stock options exercised
Weighted average fair value on grant date
2013
2012
2011
$
$
533
6,814
151
1,228
n/a
$
885
905
56
256
n/a
2,040
54
184
427
n/a
Phantom Stock Plan: The Company maintains a non-qualified phantom stock plan as a supplement to its profit sharing
plan for officers who have achieved the level of Senior Vice President and above and completed one year of service.
However, officers who had achieved at least the level of Vice President and completed one year of service prior to
January 1, 2009 remain eligible to participate in the phantom stock plan. Awards are made under this plan on certain
compensation not eligible for awards made under the profit sharing plan, due to the terms of the profit sharing plan and
the Internal Revenue Code. Employees receive awards under this plan proportionate to the amount they would have
received under the profit sharing plan, but for limits imposed by the profit sharing plan and the Internal Revenue Code.
The awards are made as cash awards, and then converted to common stock equivalents (phantom shares) at the then
current market value of the Company’s common stock. Dividends are credited to each employee’s account in the form of
additional phantom shares each time the Company pays a dividend on its common stock. In the event of a change of
control (as defined in this plan), an employee’s interest is converted to a fixed dollar amount and deemed to be invested
in the same manner as his interest in the Bank’s non-qualified deferred compensation plan. Employees vest under this
plan 20% per year for 5 years. Employees also become 100% vested upon a change of control. Employees receive their
vested interest in this plan in the form of a cash lump sum payment or installments, as elected by the employee, after
termination of employment. The Company adjusts its liability under this plan to the fair value of the shares at the end of
each period.
122
The following table summarizes the Company’s Phantom Stock Plan at or for the year ended December 31, 2013:
Phantom Stock Plan
Shares
Fair Value
Outstanding at December 31, 2012
Granted
Forfeited
Distributions
Outstanding at December 31, 2013
Vested at December 31, 2013
50,067
9,832
(46)
(530)
59,323
59,200
$
$
$
15.34
15.93
19.90
16.47
20.70
20.70
The Company recorded stock-based compensation expense (benefit) for the phantom stock plan of $343,000, $155,000
and $(34,000) for the years ended December 31, 2013, 2012 and 2011, respectively. The total fair value of distributions
from the phantom stock plan were $9,000, $12,000 and $3,000 for the years ended December 31, 2013, 2012 and 2011,
respectively.
12. Pension and Other Postretirement Benefit Plans
The amounts recognized in accumulated other comprehensive income, on a pre-tax basis, consist of the following, as of
December 31:
Net Actuarial
loss (gain)
2012
2013
2011
2013
Prior Service
cost (credit)
2012
(In thousands)
2011
2013
Total
2012
2011
Employee Retirement Plan
Other Postretirement Benefit Plans
Outside Directors Plan
Total
$
$
5,899
205
(496)
5,608
$
$
11,843
1,199
(409)
12,633
$
$
12,223
1,028
(394)
12,857
$
$
-
(708)
171
(537)
$
$
-
(794)
210
(584)
$
$
-
(879)
250
(629)
$
$
5,899
(503)
(325)
5,071
$
$
11,843
405
(199)
12,049
$
$
12,223
149
(144)
12,228
Amounts in accumulated other comprehensive income to be recognized as components of net periodic expense for these
plans in 2013 are as follows:
Employee Retirement Plan
Other Postretirement Benefit Plans
Outside Directors Plan
Net Actuarial
loss (gain)
Prior Service
cost (credit)
(In thousands)
Total
$
$
759
-
(60)
699
$
$
-
(85)
40
(45)
$
$
759
(85)
(20)
654
Employee Retirement Plan:
The Bank has a funded noncontributory defined benefit retirement plan covering substantially all of its salaried
employees who were hired before September 1, 2005 (the “Retirement Plan”). The benefits are based on years of service
and the employee’s compensation during the three consecutive years out of the final ten years of service, which was
completed prior to September 30, 2006, the date the Retirement Plan was frozen, that produces the highest average. The
Bank’s funding policy is to contribute annually the amount recommended by the Retirement Plan’s actuary. The Bank’s
Retirement Plan invests in diversified equity and fixed-income funds, which are independently managed by a third party.
The Company contributed $0.8 million, $0.7 million and $2.7 million to the Retirement Plan during the years ended
123
December 31, 2013, 2012 and 2011, respectively. The Company used a December 31 measurement date for the
Retirement Plan.
The following table sets forth, for the Retirement Plan, the change in benefit obligation and assets, and for the Company,
the amounts recognized in the Consolidated Statements of Financial Condition at December 31:
Change in benefit obligation:
Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gains) loss
Benefits paid
Projected benefit obligation at end of year
Change in plan assets:
Market value of assets at beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
Market value of plan assets at end of year
2013
2012
(In thousands)
$
$
22,531
-
827
(2,485)
(1,133)
19,740
17,300
3,498
831
(1,133)
20,496
21,101
-
879
1,428
(877)
22,531
15,421
2,033
723
(877)
17,300
Accrued pension prepaid (liability) included in other assets (liabilities)
$
756
$
(5,231)
Assumptions used to determine the Retirement Plan’s benefit obligations are as follows at December 31:
Weighted average discount rate
Rate of increase in future compensation levels
Expected long-term rate of return on assets
2013
2012
4.60%
n/a
7.50%
3.75%
n/a
7.50%
The accumulated benefit obligation for the Retirement Plan was $19.7 million and $22.5 million at December 31,
2013 and 2012, respectively.
124
The components of the net pension expense for the Retirement Plan are as follows for the years ended December 31:
Service cost
Interest cost
Amortization of unrecognized loss
Expected return on plan assets
Net pension expense (benefit)
Current year actuarial (gain) loss
Amortization of actuarial loss
Total recognized in other comprehensive income
Total recognized in net pension cost (benefit) and other
$
2013
-
827
1,222
(1,261)
788
(4,722)
(1,222)
(5,944)
2012
(In thousands)
$
-
879
1,032
(1,257)
654
652
(1,032)
(380)
$
2011
-
919
639
(1,164)
394
3,714
(639)
3,075
comprehensive income
$
(5,156)
$
274
$
3,469
Assumptions used to develop periodic pension cost for the Retirement Plan for the years ended December 31 were:
Weighted average discount rate
Rate of increase in future compensation levels
Expected long-term rate of return on assets
2013
2012
2011
3.75%
n/a
7.50%
4.25%
n/a
7.50%
5.25%
n/a
8.00%
The following benefit payments, which reflect expected future service, are expected to be paid by the Retirement Plan:
For the years ending December 31:
2014
2015
2016
2017
2018
2019 – 2023
Future
Benefit
Payments
(In thousands)
$ 1,030
1,094
1,130
1,141
1,134
6,060
The long-term rate-of-return-on-assets assumption was set based on historical returns earned by equities and fixed
income securities, adjusted to reflect expectations of future returns as applied to the plan's target allocation of asset
classes. Equities and fixed income securities were assumed to earn real rates of return in the ranges of 8-10% and 3-5%,
respectively. When these overall return expectations are applied to the plans target allocation, the result is an expected
rate return of approximately 8%.
The Retirement Plan’s weighted average asset allocations at December 31, by asset category, were:
Equity securities
Debt securities
2013
69%
31%
2012
64%
36%
125
Plan assets are invested in a diversified mix of stock and bond investment funds on the pooled account, group annuity
platform of Prudential Retirement Services. Each fund has its own investment objectives, investment strategies and risks
as detailed in its prospectus.
The long-term investment objectives are to maintain plan assets at a level that will sufficiently cover long-term
obligations and to generate a return on plan assets that will meet or exceed the rate at which long-term obligations will
grow. A combination of equity and fixed income portfolios are used to help achieve these objectives based on a long-
term, liability based strategic mix of 60% equities and 40% fixed income. Adjustments to this mix are made periodically
based on current capital market conditions and plan funding levels. Performance of the investment fund managers is
monitored on an ongoing basis using modern portfolio risk analysis and appropriate index benchmarks.
The Bank does not expect to make a contribution to the Retirement Plan in 2014.
Pooled Separate Accounts – (Level 2) Valued as determined by the investment manager and is based on the value of
the underlying assets held at December 31, 2013 and 2012.
The following table sets forth the employee pension plan’s assets that are carried at fair value, and the method that was
used to determine their fair value, at December 31, 2013:
Quoted Prices
in Active
Markets for
Identical Assets
Level 1
Significant
Other
Observable
Inputs
Level 2
(In thousands)
Significant
Other
Unobservable
Inputs
Level 3
Total
Pooled Separate Accounts
U.S. large-cap growth (a)
U.S. large-cap value (b)
U.S. small-cap blend (c)
International blend (d)
Bond fund (e)
Prudential short term (f)
$
$
4,609
4,625
2,536
2,336
5,993
397
Total
$
20,496
$
-
-
-
-
-
-
-
$
$
4,609
4,625
2,536
2,336
5,993
397
$
20,496
$
-
-
-
-
-
-
-
a. Comprised of large-cap stocks seeking to outperform, over the long term, the Russell 1000 Growth Index.
The portfolio will typically hold between 55 and 70 stocks.
b. Comprised of large-cap stocks seeking to outperform the Russell 1000® Value benchmark over the rolling
three and five year periods, or a full market cycle, whichever is longer.
c. Comprised of stocks with market capitalization of between $100 million and the market capitalization of the
largest stock in the Russell 2000 index at the time of purchase. The portfolio will typically hold between 40
and 100 stocks.
d. Comprised of non-U.S. domiciled stocks. The portfolio will typically hold between 80 and 90 stocks.
e. Comprised of a portfolio of fixed income securities including U.S agency mortgage-backed securities and
investment grade bonds.
f. Comprised of money market instruments with an emphasis on safety and liquidity.
126
The following table sets forth the employee pension plan’s assets that are carried at fair value, and the method that was
used to determine their fair value, at December 31, 2012:
Quoted Prices
in Active
Markets for
Identical Assets
Level 1
Significant
Other
Observable
Inputs
Level 2
(In thousands)
Significant
Other
Unobservable
Inputs
Level 3
Total
Pooled Separate Accounts
U.S. large-cap growth (a)
U.S. large-cap value (b)
U.S. small-cap blend (c)
International blend (d)
Bond fund (e)
Prudential short term (f)
$
$
3,406
3,912
1,980
1,837
5,820
345
Total
$
17,300
$
-
-
-
-
-
-
-
$
$
3,406
3,912
1,980
1,837
5,820
345
$
17,300
$
-
-
-
-
-
-
-
a. Comprised of large-cap stocks seeking to outperform, over the long term, the Russell 1000 Growth Index.
The portfolio will typically hold between 55 and 70 stocks.
b. Comprised of large-cap stocks seeking to outperform the Russell 1000® Value benchmark over the rolling
three and five year periods, or a full market cycle, whichever is longer.
c. Comprised of stocks with market capitalization of between $100 million and the market capitalization of the
largest stock in the Russell 2000 index at the time of purchase. The portfolio will typically hold between 40
and 100 stocks.
d. Comprised of non-U.S. domiciled stocks. The portfolio will typically hold between 80 and 90 stocks.
e. Comprised of a portfolio of fixed income securities including U.S agency mortgage-backed securities and
investment grade bonds.
f. Comprised of money market instruments with an emphasis on safety and liquidity.
Other Postretirement Benefit Plans:
The Company sponsors two unfunded postretirement benefit plans (the “Postretirement Plans”) that cover all retirees who were
full-time permanent employees with at least five years of service, and their spouses. Effective January 1, 2012, the Postretirement
Plans are no longer available for new hires. One plan provides medical benefits through a 50% cost sharing arrangement.
Effective January 1, 2000, the spouses of future retirees were required to pay 100% of the premiums for their coverage.
The other plan provides life insurance benefits and is noncontributory. Effective January 1, 2010, life insurance benefits
are not available for future retirees. Under these programs, eligible retirees receive lifetime medical and life insurance
coverage for themselves and lifetime medical coverage for their spouses. The Company reserves the right to amend or
terminate these plans at its discretion.
Comprehensive medical plan benefits equal the lesser of the normal plan benefit or the total amount not paid by
Medicare. Life insurance benefits for retirees are based on annual compensation and age at retirement. As of December
31, 2013, the Company has not funded these plans. The Company used a December 31 measurement date for these plans.
127
The following table sets forth, for the Postretirement Plans, the change in benefit obligation and assets, and for the
Company, the amounts recognized in the Consolidated Statements of Financial Condition at December 31:
Change in benefit obligation:
Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid
Projected benefit obligation at end of year
Change in plan assets:
Market value of assets at beginning of year
Employer contributions
Benefits paid
Market value of plan assets at end of year
2013
2012
(In thousands)
$
$
5,927
449
219
(943)
(66)
5,586
-
66
(66)
-
5,166
400
217
211
(67)
5,927
-
67
(67)
-
Accrued pension cost included in other liabilities
$
(5,586)
$
(5,927)
The accumulated benefit obligation for the Postretirement Plans was $5.6 million and $5.9 million at December 31, 2013
and 2012, respectively.
Assumptions used in determining the actuarial present value of the accumulated postretirement benefit obligations at
December 31 are as follows:
Rate of return on plan assets
Discount rate
Rate of increase in health care costs
Initial
Ultimate (year 2018)
Annual rate of salary increase for life insurance
2013
2012
n/a
4.60%
9.00%
5.00%
n/a
n/a
3.75%
10.00%
5.00%
n/a
The resulting net periodic postretirement expense consisted of the following components for the years ended December
31:
Service cost
Interest cost
Amortization of unrecognized loss
Amortization of past service credit
Net postretirement benefit expense
Current year actuarial (gain) loss
Amortization of actuarial gain
Amortization of prior service credit
Total recognized in other comprehensive income
Total recognized in net postretirement expense
$
2013
449
219
50
(85)
633
(943)
(50)
85
(908)
2012
(In thousands)
400
$
217
40
(85)
572
$
211
(40)
85
256
2011
313
207
-
(85)
435
686
-
85
771
and other comprehensive income
$
(275)
$
828
$
1,206
128
Assumptions used to develop periodic postretirement expense for the Postretirement Plans for the years ended December
31 were:
Rate of return on plan assets
Discount rate
Rate of increase in health care costs
Initial
Ultimate (year 2018)
Annual rate of salary increase for life insurance
2013
2012
2011
n/a
3.75%
10.00%
5.00%
n/a
n/a
4.25%
10.50%
5.50%
n/a
n/a
5.75%
11.50%
5.50%
n/a
The health care cost trend rate assumptions have a significant effect on the amounts reported. A one percentage point
change in assumed health care trend rates would have the following effects:
Effect on postretirement benefit obligation
Effect on total service and interest cost
The Company expects to pay benefits of $158,000 under its Postretirement Plans in 2014.
Increase
Decrease
(In thousands)
$906
132
$(711)
(102)
The following benefit payments under the Postretirement Plan, which reflect expected future service, are expected to be
paid
For the years ending December 31:
2014
2015
2016
2017
2018
2019 - 2023
Future Benefit
Payments
(In thousands)
$ 158
184
206
228
248
1,428
Defined Contribution Plans:
The Company maintains a tax qualified 401(k) plan which covers substantially all salaried employees who have
completed one year of service. Currently, annual matching contributions under the Bank’s 401(k) plan equal 50% of the
employee’s contributions, up to a maximum of 3% of the employee’s compensation. In addition, the 401(k) plan
includes the Defined Contribution Retirement Plan (“DCRP”), under which the Bank contributes an amount equal to 4%
of an employee’s eligible compensation as defined in the plan, and the Profit Sharing Plan (“PSP”), under which at the
discretion of the Company’s Board of Directors a contribution is made. Contributions for the DCRP and PSP are made
in the form of Company common stock at or after the end of each year. Annual contributions under these plans are
subject to the limits imposed under the Internal Revenue Code. Contributions by the Company into the 401(k) plan vest
20% per year over the employee's first five years of service. Contributions to these plans also 100% vest upon a change
of control (as defined in the applicable plan). Compensation expense recorded by the Company for these plans amounted
to $2.9 million, $2.4 million and $2.3 million for the years ended December 31, 2013, 2012 and 2011, respectively.
The Bank provides a non-qualified deferred compensation plan as an incentive for officers who have achieved the level
of at least Senior Vice President and have at least one year of service. However, officers who had achieved at least the
level of Vice President and completed one year of service prior to January 1, 2009 remain eligible to participate in the
plan. In addition to the amounts deferred by the officers, the Bank matches 50% of their contributions, generally up to a
maximum of 5% of the officers’ salary. Matching contributions under this plan vest 20% per year for five years. They
also become 100% vested upon a change of control (as defined in the plan). Compensation expense recorded by the
129
Company for this plan amounted to $0.4 million, $0.4 million and $0.3 million for the years ended December 31, 2013,
2012 and 2011.
Employee Benefit Trust:
An Employee Benefit Trust (“EBT”) has been established to assist the Company in funding its benefit plan obligations.
In connection with the Savings Bank’s conversion to a federal stock savings bank in 1995, the EBT borrowed $7.9
million from the Company and used $7,000 of cash received from the Savings Bank to purchase 2,328,750 shares of the
common stock of the Company. The loan was repaid from the Company’s discretionary contributions to the EBT and
dividend payments received on common stock held by the EBT. During the year ended December 31, 2010, the loan was
fully repaid. Dividend payments received subsequent to the loan being repaid are used to purchase additional shares of
common stock. Shares purchased with the loan proceeds are held in a suspense account for contribution to specified
benefit plans. Shares released from the suspense account are used solely for funding matching contributions under the
Bank’s 401(k) plan, contributions to the 401(k) plan for the DCRP, and contributions to the PSP. Since annual
contributions are discretionary with the Company or dependent upon employee contributions, compensation payable
under the EBT cannot be estimated. For the years ended December 31, 2013, 2012 and 2011, the Company funded $2.3
million, $2.1 million and $2.0 million, respectively, of employer contributions to the 401(k) and profit sharing plans
from the EBT.
Upon a change of control (as defined in the EBT), the EBT will terminate and any trust assets remaining after certain
benefit plan contributions will be distributed to all full-time employees of the Company with at least one year of service,
in proportion to their compensation over the four most recently completed calendar years plus the portion of the current
year prior to the termination of the EBT.
As shares are released from the suspense account, the Company reports compensation expense equal to the current
market price of the shares, and the shares become outstanding for earnings per share computations. The EBT shares are
as follows at December 31:
Shares owned by Employee Benefit Trust, beginning balance
Shares purchased
Shares released and allocated
Shares owned by Employee Benefit Trust, ending balance
2013
2012
1,028,565
29,168
(143,941)
913,792
1,147,332
39,155
(157,922)
1,028,565
Market value of unallocated shares.
$
18,915,494
$
15,778,187
Outside Director Retirement Plan:
The Bank has an unfunded noncontributory defined benefit Outside Director Retirement Plan (the “Directors’ Plan”),
which provides benefits to each non-employee director who became a non-employee director before January 1, 2004,
who has at least five years of service as a non-employee director and whose years of service as a non-employee director
plus age equals or exceeds 55. Benefits are also payable to a non-employee director who became a non-employee
director before January 1, 2004 and whose status as a non-employee director terminates because of death or disability or
who is a non-employee director upon a change of control (as defined in the Directors’ Plan). Any person who became a
non-employee director after January 1, 2004 is not eligible to participate in the Directors’ Plan. An eligible director who
terminates after November 22, 2005 will be paid an annual retirement benefit equal to $48,000. Such benefit will be
paid in equal monthly installments for the lesser of the number of months such director served as a non-employee director
or 120 months. In the event of a termination of Board service due to a change of control, a non-employee director who has
completed at least two years of service as a non-employee director will receive a cash lump sum payment equal to 120 months
of benefit, and a non-employee director with less than two years of service will receive a cash lump sum payment equal to a
number of months of benefit equal to the number of months of his service as a non-employee director. In the event of the
director’s death, the surviving spouse will receive the equivalent benefit. No benefits will be payable to a director who
is removed for cause. The Holding Company has guaranteed the payment of benefits under the Directors’ Plan. Upon
adopting the Directors’ Plan, the Bank elected to immediately recognize the effect of adopting the Directors’ Plan.
Subsequent plan amendments are amortized as a past service liability. The Bank used a December 31 measurement date
for the Directors’ Plan.
130
The following table sets forth, for the Directors’ Plan, the change in benefit obligation and assets, and for the Company,
the amounts recognized in the Consolidated Statements of Financial Condition at December 31:
Change in benefit obligation:
Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial gain
Benefits paid
Projected benefit obligation at end of year
Change in plan assets:
Market value of assets at beginning of year
Employer contributions
Benefits paid
Market value of plan assets at end of year
$
2013
2012
(In thousands)
$
2,706
82
98
(122)
(98)
2,666
-
98
(98)
-
2,647
80
110
(44)
(87)
2,706
-
87
(87)
-
Accrued pension cost included in other liabilities
$
(2,666)
$
(2,706)
The accumulated benefit obligation for the Directors’ Plan was $2.7 million at December 31, 2013 and 2012.
The components of the net pension expense for the Directors’ Plan are as follows for the years ended December 31:
Service cost
Interest cost
Amortization of unrecognized gain
Amortization of past service liability
Net pension expense
Current actuarial loss (gain)
Amortization of actuarial gain
Amortization of prior service cost
Total recognized in other comprehensive income
Total recognized in net pension expense and other
$
2013
82
98
(36)
123
267
(122)
36
(40)
(126)
$
2012
(In thousands)
80
$
110
(29)
40
201
(44)
29
(40)
(55)
2011
70
124
(54)
40
180
67
54
(40)
81
comprehensive income
$
141
$
146
$
261
Assumptions used to determine benefit obligations and periodic pension expense for the Directors’ Plan for the years
ended December 31 were:
Weighted average discount rate for the benefit obligation
Weighted average discount rate for periodic pension benefit expense
Rate of increase in future compensation levels
2013
2012
2011
4.60%
3.75%
n/a
3.75%
4.25%
n/a
4.25%
5.25%
n/a
131
The following benefit payments under the Directors’ Plan, which reflect expected future service, are expected to be paid:
For the years ending December 31:
2014
2015
2016
2017
2018
2019 – 2023
Future Benefit
Payments
(In thousands)
$ 260
288
288
288
272
1,312
The Bank expects to make payments of $260,000 under its Directors’ Plan in 2014.
13. Stockholders’ Equity
Dividend Restrictions on the Bank:
In connection with the Savings Bank’s conversion from mutual to stock form in November 1995, a special liquidation
account was established at the time of conversion, in accordance with the requirements of its primary regulator, which
was equal to its capital as of June 30, 1995. The liquidation account is reduced as and to the extent that eligible account
holders have reduced their qualifying deposits. Subsequent increases in deposits do not restore an eligible account
holder’s interest in the liquidation account. Subsequent to the Merger, the Bank assumed the liquidation account. In the
event of a complete liquidation of the Bank, each eligible account holder will be entitled to receive a distribution from
the liquidation account in an amount proportionate to the current adjusted qualifying balances for accounts then held. As
of December 31, 2013, the Bank’s liquidation account was $1.2 million, and was presented within retained earnings.
In addition to the restriction described above, New York State and Federal banking regulations place certain restrictions
on dividends paid by the Bank to the Holding Company. The total amount of dividends which may be paid at any date is
generally limited to the net income of the Bank for the current year and prior two years, less any dividends previously
paid from those earnings. As of December 31, 2013, the Bank had $50.8 million in retained earnings available to
distribute to the Holding Company in the form of cash dividends.
In addition, dividends paid by the Bank to the Holding Company would be prohibited if the effect thereof would cause
the Bank’s capital to be reduced below applicable minimum capital requirements.
As a bank holding company, the Holding Company is subject to similar dividend restrictions.
Stockholder Rights Plan:
The Holding Company has adopted a Shareholder Rights Plan under which each stockholder has one right to purchase
from the Holding Company, for each share of common stock owned, one one-hundredth of a share of Series A junior
participating preferred stock at a price of $65. The rights will become exercisable only if a person or group acquires 15%
or more of the Holding Company’s common stock or commences a tender or exchange offer which, if consummated,
would result in that person or group owning at least 15% of the Common Stock (the “acquiring person or group”). In
such case, all stockholders other than the acquiring person or group will be entitled to purchase, by paying the $65
exercise price, Common Stock (or a common stock equivalent) with a value of twice the exercise price. In addition, at
any time after such event, and prior to the acquisition by any person or group of 50% or more of the Common Stock, the
Board of Directors may, at its option, require each outstanding right (other than rights held by the acquiring person or
group) to be exchanged for one share of Common Stock (or one common stock equivalent). If a person or group
becomes an acquiring person and the Holding Company is acquired in a merger or other business combination or sells
more than 50% of its assets or earning power, each right will entitle all other holders to purchase, by payment of $65
exercise price, common stock of the acquiring company with a value of twice the exercise price. The rights plan expires
on September 30, 2016.
Treasury Stock Transactions:
The Holding Company repurchased 836,092 common shares at an average cost of $15.73 during the year ended
December 31, 2013. The Holding Company repurchased 352,000 common shares at an average cost of $14.26 during the
132
year ended December 31, 2012. At December 31, 2013, 549,870 shares remain to be repurchased under the current stock
repurchase program. Stock will be purchased under the current stock repurchase program from time to time, in the open
market or through private transactions, subject to market conditions and at the discretion of the management of the
Company. There is no expiration or maximum dollar amount under this authorization.
Accumulated Other Comprehensive Income (Loss):
The components of accumulated other comprehensive loss at December 31, 2013 and 2012 and the changes during the
year ended December 31, 2013 are as follows:
Net unrealized (loss) gain on securities
available for sale
Net actuarial loss on pension plans and
other postretirement benefits
Prior service credit on pension
plans and other postretirement benefits
Accumulated other comprehensive (loss) income
December 31,
2013
Other
Comprehensive
Income
(In thousands)
December 31,
2012
$
(8,522)
$
(27,443)
$
18,921
(3,151)
3,957
(7,108)
298
(11,375)
$
$
(26)
(23,512)
$
324
12,137
The following table sets forth significant amounts reclassified out of accumulated other comprehensive income by
component for the year ended December 31, 2013:
Details about Accumulated Other
Comprehensive Income Components
Unrealized gains (losses) on available
for sale securities:
OTTI charges
Amortization of defined benefit pension items:
Actuarial losses
Prior service credits
Amounts Reclassified from
Accumulated Other
Comprehensive Income
(Dollars in thousands)
Affected Line Item in the Statement
Where Net Income is Presented
$
$
$
$
$
$
3,021
(1,321)
1,700
Net gain on sale of securities
Tax expense
Net of tax
(1,419)
621
(798)
OTTI charge
Tax benefit
Net of tax
(1,237)
(1) Other expense
46 (1) Other expense
Total before tax
Tax benefit
Net of tax
(1,191)
521
(670)
(1) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 12 of the
Notes to Consolidated Financial Statements “Pension and Other Postretirement Benefit Plans”).
133
Shelf Registration Statement:
On November 18, 2010, the Company filed a shelf registration statement which allows the Company to periodically offer
and sell, individually or in any combination, preferred stock, common stock, warrants to purchase preferred or common
stock, and debt securities, up to a total of $170.0 million. The shelf registration was declared effective on April 8, 2011.
The Company’s ability to issue debt or equity under this shelf registration is subject to market conditions and its capital
needs.
14. Regulatory Capital
Under current capital regulations, the Bank is required to comply with three separate capital adequacy standards. As of
December 31, 2013, the Bank continues to be categorized as “well-capitalized” under the prompt corrective action
regulations and continues to exceed all regulatory capital requirements.
Set forth below is a summary of the Bank’s compliance with banking regulatory capital standards.
Tier I (leverage) capital:
Capital level
Requirement to be well capitalized
Excess
Tier I risk-based capital:
Capital level
Requirement to be well capitalized
Excess
Total risk-based capital:
Capital level
Requirement to be well capitalized
Excess
December 31, 2013
December 31, 2012
Amount
Percent of
Assets
Amount
Percent of
Assets
(Dollars in thousands)
$
$
$
447,305
235,992
211,313
447,305
183,944
263,361
479,081
306,573
172,508
9.48 %
5.00
4.48
14.59 %
6.00
8.59
15.63 %
10.00
5.63
$
$
$
425,149
220,980
204,169
425,149
177,401
247,748
456,252
295,668
160,584
9.62 %
5.00
4.62
14.38 %
6.00
8.38
15.43 %
10.00
5.43
134
As a result of its conversion to a bank holding company on February 28, 2013, the Holding Company became subject to
the same regulatory capital requirements as the Bank. As of December 31, 2013, the Holding Company continues to be
categorized as “well-capitalized” under the prompt corrective action regulations and continues to exceed all regulatory
capital requirements.
Set forth below is a summary of the Holding Company’s compliance with banking regulatory capital standards.
Tier I (leverage) capital: (1)
Capital level
Requirement to be well capitalized
Excess
Tier I risk-based capital: (1)
Capital level
Requirement to be well capitalized
Excess
Total risk-based capital: (1)
Capital level
Requirement to be well capitalized
Excess
December 31, 2013
Amount
Percent of
Assets
(Dollars in thousands)
$
$
$
456,772
235,547
221,225
456,772
183,579
273,193
488,548
305,966
182,582
9.70 %
5.00
4.70
14.93 %
6.00
8.93
15.97 %
10.00
5.97
(1) If the Holding Company had been subject to regulatory capital requirements at December 31, 2012, its tangible,
leverage and core, and risk-based capital ratios would have been 10.06%, 14.89%, and 15.95%, respectively, and it
would have been categorized “well-capitalized” under regulatory guidelines at December 31, 2012.
15. Commitments and Contingencies
Commitments:
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include commitments to extend credit and lines of credit.
The instruments involve, to varying degrees, elements of credit and market risks in excess of the amount recognized in
the consolidated financial statements.
The Company’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument
for loan commitments and lines of credit is represented by the contractual amounts of these instruments.
Commitments to extend credit (principally real estate mortgage loans) and lines of credit (principally home equity lines
of credit and business lines of credit) amounted to $36.9 million and $153.9 million, respectively, at December 31, 2013.
Included in these commitments were $29.4 million of fixed-rate commitments at a weighted average rate of 4.16%, and
$161.4 million of adjustable-rate commitments with a weighted average rate, as of December 31, 2013, of 3.63%. Since
generally all of the loan commitments are expected to be drawn upon, the total loan commitments approximate future
cash requirements, whereas the amounts of lines of credit may not be indicative of the Company’s future cash
requirements. The loan commitments generally expire in 90 days, while construction loan lines of credit mature within
eighteen months and home equity lines of credit mature within ten years. The Company uses the same credit policies in
making commitments and conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are legally binding agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed expiration dates and require payment of a fee.
The Company evaluates each customer’s creditworthiness on a case-by-case basis. Collateral held consists primarily of
real estate.
135
The Bank collateralized a portion of its deposits with letters of credit issued by FHLB-NY. At December 31, 2013, there
were $517.8 million of letters of credit outstanding. The letters of credit are collateralized by mortgage loans pledged
by the Bank.
The Trusts issued capital securities with a par value of $61.9 million in June and July 2007. The Holding Company has
guaranteed the payment of the Trusts’ obligations under these capital securities.
The Company’s minimum annual rental payments for Bank premises due under non-cancelable leases are as follows:
Years ended December 31:
2014
2015
2016
2017
2018
Thereafter
Total minimum payments required
Minimum Rental
(In thousands)
$
$
3,717
3,268
3,193
3,043
3,047
13,618
29,886
The leases have escalation clauses for operating expenses and real estate taxes. Certain lease agreements provide for
increases in rental payments based upon increases in the consumer price index. Rent expense under these leases for the
years ended December 31, 2013, 2012 and 2011 was approximately $3.7 million, $3.7 million and $3.8 million,
respectively.
Contingencies:
The Company is a defendant in various lawsuits. Management of the Company, after consultation with outside legal
counsel, believes that the resolution of these various matters will not result in any material adverse effect on the
Company’s consolidated financial condition, results of operations or cash flows.
16. Concentration of Credit Risk
The Company’s lending is concentrated in the metropolitan New York City metropolitan area. The Company evaluates
each customer’s creditworthiness on a case-by-case basis under the Company’s established underwriting policies. The
collateral obtained by the Company generally consists of first liens on one-to-four family residential, multi-family
residential, and commercial real estate. At December 31, 2013, the largest amount the Bank could lend to one borrower
was approximately $67.1 million, and at that date, the Bank’s largest aggregate amount of loans to one borrower was
$59.2 million, all of which were performing according to their terms.
17. Related Party Transactions
At December 31, 2013, two loans totaling $0.2 million were outstanding to an immediate family member of a director
and a executive officer of the Company. These loans were made in the ordinary course of business and were fully
approved in accordance with all of the Company’s credit underwriting standards and were made at market rates of
interest and other normal terms but with reduced origination fees. No such loans were made during 2013. The Company
believes that such loans do not involve more than the normal risk of collectability or present other unfavorable features.
One director is a partner in a law firm which represents the Company in connection with closings of residential and
certain commercial real estate loans, the fees of which are paid by borrowers. The borrowers paid an aggregate of $1.3
million to the firm in this regard during 2013. In addition, the firm handles certain legal matters in connection with loans
(as well as any other general legal matters), the fees for which are paid by the Company. The Company paid an
aggregate of $5,125 to the firm in this regard in 2013.
One director serves as Chief Equity Strategist of Shay Assets Management, Inc. and is a co-manager of the AMF Large
Cap Equity Fund, which is managed by Shay Assets Management. The Company maintains investments in two funds
managed by Shay Assets Management with a total market value of $6.0 million at December 31, 2013. The Company’s
investment in these funds pre-dates the director’s service as a director. The portion of the management fees paid to Shay
Assets Management by these funds that are attributable to investments of the Company totaled approximately $30,739 in
2013. The director receives no remuneration from the funds. In addition, from time to time the Company executes trades
using the brokerage services of Shay Assets Management.
136
18. Fair Value of Financial Instruments
The Company carries certain financial assets and financial liabilities at fair value in accordance with ASC Topic 825
“Financial Instruments” and values those financial assets and financial liabilities in accordance with ASC Topic 820
“Fair Value Measurements and Disclosures.” ASC Topic 820 defines fair value as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date,
establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC topic
825 permits entities to choose to measure many financial instruments and certain other items at fair value. At December
31, 2013, the Company carried financial assets and financial liabilities under the fair value option with fair values of
$37.3 million and $29.6 million, respectively. At December 31, 2012, the Company carried financial assets and financial
liabilities under the fair value option with fair values of $54.5 million and $23.9 million, respectively. During the years
ended December 31, 2013 and 2012, the Company did not elect to carry any additional financial assets or financial
liabilities under the fair value option.
The following table presents the financial assets and financial liabilities reported at fair value under the fair value option
at December 31, 2013 and 2012, and the changes in fair value included in the Consolidated Statement of Income – Net
gain (loss) from fair value adjustments, for the years ended December 31, 2013, 2012 and 2011:
Fair Value
Measurements
at December 31,
2013
Description
(Dollars in thousands)
Mortgage-backed securities
Other securities
Borrowed funds
Net gain (loss) from fair value adjustments (1) (2)
$
7,119
30,163
29,570
Fair Value
Measurements
at December 31,
2012
$
24,911
29,577
23,922
Changes in Fair Values For Items Measured at Fair Value
Pursuant to Election of the Fair Value Option
For the year ended
December 31, 2012
For the year ended
December 31, 2011
For the year ended
December 31, 2013
$
(725)
241
(5,651)
$
(539)
796
2,062
$
(665)
(1,138)
5,916
$
(6,135)
$
2,319
$
4,113
(1) The net gain (loss) from fair value adjustments presented in the above table does not include net losses of
$18,000, $0.3 million and $2.2 million from the change in the fair value of interest rate caps recorded during the
years ended December 31, 2013, 2012 and 2011, respectively.
(2) The net gain (loss) from fair value adjustments presented in the above table does not include a net gain of $3.6
million and a net loss of $1.9 million from the change in the fair value of interest rate swaps recorded during the
years ended December 31, 2013 and 2012, respectively.
Included in the fair value of the financial assets and financial liabilities selected for the fair value option is the accrued
interest receivable or payable for the related instrument. The Company reports as interest income or interest expense in
the Consolidated Statement of Income, the interest receivable or payable on the financial instruments selected for the fair
value option at their respective contractual rates.
The borrowed funds have a contractual principal amount of $61.9 million at both December 31, 2013 and 2012. The fair
value of borrowed funds includes accrued interest payable of $0.1 million at December 31, 2013 and 2012.
The Company generally holds its earning assets, other than securities available for sale, to maturity and settles its
liabilities at maturity. However, fair value estimates are made at a specific point in time and are based on relevant market
information. These estimates do not reflect any premium or discount that could result from offering for sale at one time
the Company’s entire holdings of a particular instrument. Accordingly, as assumptions change, such as interest rates and
prepayments, fair value estimates change and these amounts may not necessarily be realized in an immediate sale.
Disclosure of fair value does not require fair value information for items that do not meet the definition of a financial
instrument or certain other financial instruments specifically excluded from its requirements. These items include core
deposit intangibles and other customer relationships, premises and equipment, leases, income taxes and equity.
137
Further, fair value disclosure does not attempt to value future income or business. These items may be material and
accordingly, the fair value information presented does not purport to represent, nor should it be construed to represent,
the underlying “market” or franchise value of the Company.
Financial assets and financial liabilities reported at fair value are required to be measured based on either: (1) quoted
prices in active markets for identical financial instruments (Level 1); (2) significant other observable inputs (Level 2); or
(3) significant unobservable inputs (Level 3).
A description of the methods and significant assumptions utilized in estimating the fair value of the Company’s assets
and liabilities that are carried at fair value on a recurring basis are as follows:
Level 1 – where quoted market prices are available in an active market. The Company did not value any of its assets or
liabilities that are carried at fair value on a recurring basis as Level 1 at December 31, 2013 and 2012.
Level 2 – when quoted market prices are not available, fair value is estimated using quoted market prices for similar
financial instruments and adjusted for differences between the quoted instrument and the instrument being valued. Fair
value can also be estimated by using pricing models, or discounted cash flows. Pricing models primarily use market-
based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates,
equity or debt prices and credit spreads. In addition to observable market information, models also incorporate maturity
and cash flow assumptions. At December 31, 2013 and 2012, Level 2 included mortgage related securities, corporate
debt and interest rate caps/swaps.
Level 3 – when there is limited activity or less transparency around inputs to the valuation, financial instruments are
classified as Level 3. At December 31, 2013 and 2012, Level 3 included REMIC and CMO securities, municipal
securities and trust preferred securities owned by and junior subordinated debentures issued by the Company.
The methods described above may produce fair values that may not be indicative of net realizable value or reflective of
future fair values. While the Company believes its valuation methods are appropriate and consistent with those of other
market participants, the use of different methodologies, assumptions and models to determine fair value of certain
financial instruments could produce different estimates of fair value at the reporting date.
The following table sets forth the Company's assets and liabilities that are carried at fair value on a recurring basis, and
the method that was used to determine their fair value, at December 31:
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
2013
2012
$
$
$
$
-
-
-
-
-
-
-
-
$
$
$
$
-
-
-
-
-
-
-
-
Assets:
Securities available for sale
Mortgage-backed
Securities
Other securities
Interest rate caps
Interest rate swaps
Total assets
Liabilities:
Borrowings
Interest rate swaps
Total liabilities
Significant Other
Observable Inputs
(Level 2)
2013
2012
Significant Other
Unobservable Inputs
(Level 3)
2013
2012
Total carried at fair value
on a recurring basis
2013
2012
$
756,156
237,476
-
2,081
$
696,638
213,374
19
3
$
-
24,158
-
-
$
23,475
16,079
-
-
$
756,156
261,634
-
2,081
$
720,113
229,453
19
3
$
995,713
$
910,034
$
24,158
$
39,554
$
1,019,871
$
949,588
$
$
-
-
-
$
$
-
1,922
$
29,570
-
$
23,922
-
1,922
$
29,570
$
23,922
$
$
29,570
-
$
23,922
1,922
29,570
$
25,844
138
The following table sets forth the Company's assets and liabilities that are carried at fair value on a recurring basis,
classified within Level 3 of the valuation hierarchy for the period indicated:
For the year ended
December 31, 2013
REMIC and
CMO
Municipals
Trust preferred
securities
Junior subordinated
debentures
Beginning balance
Transfer into Level 3
Principal repayments
Sales
Net gain from fair value adjustment
of financial assets
Net loss from fair value
adjustment of financial liabilities
Decrease in accrued interest payable
Other-than-temporary impairment charge
Change in unrealized gains (losses) included
in other comprehensive income
Ending balance
Changes in unrealized held at period end
$
$
$
23,475
-
(5,036)
(19,973)
-
-
-
(1,419)
2,953
-
-
$
$
$
(In thousands)
9,429
-
(206)
-
-
-
-
-
-
9,223
-
$
$
$
6,650
6,126
-
-
884
-
-
-
1,275
14,935
1,275
$
$
$
23,922
-
-
-
-
5,651
(3)
-
-
29,570
-
The following table sets forth the Company's assets and liabilities that are carried at fair value on a recurring basis,
classified within Level 3 of the valuation hierarchy for the period indicated:
For the year ended
December 31, 2012
REMIC and
CMO
Municipals
Trust preferred
securities
Junior subordinated
debentures
(In thousands)
Beginning balance
Transfer into Level 3
Net gain (loss) from fair value adjustment
of financial assets
Net gain from fair value
adjustment of financial liabilities
Decrease in accrued interest receivable
Decrease in accrued interest payable
Change in unrealized gains(losses) included
in other comprehensive income
Ending balance
$
-
23,475
$
-
9,429
$
5,632
-
$
-
-
-
-
-
-
-
-
233
-
(10)
-
-
23,475
$
$
-
9,429
$
795
6,650
$
26,311
-
-
(2,062)
-
(327)
-
23,922
139
During the years ended December 31, 2013 and 2012, there were no transfers between Levels 1 and 2.
During the year ended December 31, 2013, transfers from Level 2 to Level 3 included one private issue trust preferred
security for $6.1 million. This security was transferred due to illiquidity and reduced price transparency. During the year
ended December 31, 2012, transfers from Level 2 to Level 3 included two municipal securities totaling $9.4 million and
five private issue CMOs totaling $23.5 million. The transfer in municipal securities and private issue CMOs was due to
illiquidity and reduced price transparency.
During the years ended December 31, 2013 and 2012, there were no transfers from Level 3 to Level 2.
The following table presents the quantitative information about recurring Level 3 fair value of financial instruments and
the fair value measurements as of December 31, 2013:
December 31, 2013
Fair Value
Valuation Technique
Unobservable Input
Range (Weighted Average)
(Dollars in thousands)
Assets:
Municipals
Trust Preferred Securities
Liabilities:
$
$
9,223
Discounted cash flows
Discount rate
0.3%- 4.0% (3.6%)
14,935
Discounted cash flows
Discount rate
Prepayment assumptions
Defaults
7.0%- 15.5% (9.8%)
0%- 42.6% (30.4%)
0%- 16.9% (15.0%)
Junior subordinated debentures
$
29,570
Discounted cash flows
Discount rate
7.0%(7.0%)
The significant unobservable inputs used in the fair value measurement of the Company’s municipal securities valued
under Level 3 are the securities’ effective yield. Significant increases or decreases in the effective yield in isolation
would result in a significantly lower or higher fair value measurement.
The significant unobservable inputs used in the fair value measurement of the Company’s trust preferred securities
valued under Level 3 are the securities’ effective yield, probability of default and loss severity in the event of default.
Significant increases or decreases in any of the inputs in isolation would result in a significantly lower or higher fair
value measurement.
The significant unobservable inputs used in the fair value measurement of the Company’s junior subordinated
Debentures are effective yield. Significant increases or decreases in the effective yield in isolation would result in a
significantly lower or higher fair value measurement.
The following table sets forth the Company's assets and liabilities that are carried at fair value on a non-recurring basis,
and the method that was used to determine their fair value, at December 31:
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
2013
2012
Significant Other
Observable Inputs
(Level 2)
2013
2012
Significant Other
Unobservable Inputs
(Level 3)
2013
2012
Total carried at fair value
on a recurring basis
2013
2012
Assets:
Loans held for sale
Impaired loans
Other real estate owned
Total assets
$
$
-
-
-
-
$
$
-
-
-
-
$
$
-
-
-
-
$
425
23,544
2,985
$
5,313
49,703
5,278
$
$
425
23,544
2,985
5,313
49,703
5,278
$
26,954
$
60,294
$
26,954
$
60,294
-
-
-
-
$
$
140
The following table presents the quantitative information about non-recurring Level 3 fair value of financial instruments
and the fair value measurements as of December 31, 2013:
December 31, 2013
Fair Value
Valuation Technique
Unobservable Input
Range (Weighted Average)
(Dollars in thousands)
Assets:
Loans held for sale
Impaired loans
Other real estate owned
$
$
$
425
23,544
2,985
Fair value of collateral
Fair value of collateral
Fair value of collateral
Loss severity discount
Loss severity discount
Loss severity discount
33.9%(33.9%)
0.5%-89.5% (33.2%)
0.0%-42.1% (5.6%)
The Company carries its Loans held for sale and OREO at the expected sales price less selling costs.
The Company carries its impaired collateral dependent loans at 85% of the appraised or internally estimated value of the
underlying property.
The Company did not have any liabilities that were carried at fair value on a non-recurring basis at December 31, 2013
and 2012.
The estimated fair value of each material class of financial instruments at December 31, 2013 and 2012 and the related
methods and assumptions used to estimate fair value are as follows:
Cash and Due from Banks, Overnight Interest-Earning Deposits and Federal Funds Sold:
The fair values of financial instruments that are short-term or reprice frequently and have little or no risk are considered
to have a fair value that approximates carrying value (Level 1).
FHLB-NY stock:
The fair value is based upon the par value of the stock which equals its carrying value (Level 2).
Securities Available for Sale:
The estimated fair values of securities available for sale are contained in Note 6 of Notes to Consolidated Financial
Statements. Fair value is based upon quoted market prices (Level 1 input), where available. If a quoted market price is
not available, fair value is estimated using quoted market prices for similar securities and adjusted for differences
between the quoted instrument and the instrument being valued (Level 2 input). When there is limited activity or less
transparency around inputs to the valuation, securities are valued using (Level 3 input).
Loans held for sale:
The fair value of non-performing loans held for sale is estimated through bids received on the loans and, as such, are
classified as a Level 3 input.
Loans:
The estimated fair value of loans is estimated by discounting the expected future cash flows using the current rates at
which similar loans would be made to borrowers with similar credit ratings and remaining maturities (Level 3 input).
For non-accruing loans, fair value is generally estimated by discounting management’s estimate of future cash flows
with a discount rate commensurate with the risk associated with such assets or for collateral dependent loans 85% of the
appraised or internally estimated value of the property.(Level 3 input).
Due to Depositors:
The fair values of demand, passbook savings, NOW, money market deposits and escrow deposits are, by definition,
equal to the amount payable on demand at the reporting dates (i.e. their carrying value) (Level 1). The fair value of fixed-
maturity certificates of deposits are estimated by discounting the expected future cash flows using the rates currently
offered for deposits of similar remaining maturities (Level 2 input).
141
Borrowings:
The estimated fair value of borrowings are estimated by discounting the contractual cash flows using interest rates in
effect for borrowings with similar maturities and collateral requirements (Level 2 input) or using a market-standard
model (Level 3 input).
Interest Rate Caps:
The estimated fair value of interest rate caps is based upon broker quotes (Level 2 input).
Interest Rate Swaps:
The estimated fair value of interest rate swaps is based upon broker quotes (Level 2 input).
Other Real Estate Owned:
OREO are carried at fair value less selling costs. The fair value is based on appraised value through a current appraisal,
or sometimes through an internal review, additionally adjusted by the estimated costs to sell the property (Level 3 input).
Other Financial Instruments:
The fair values of commitments to sell, lend or borrow are estimated using the fees currently charged or paid to enter into
similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the
counterparties or on the estimated cost to terminate them or otherwise settle with the counterparties at the reporting date.
For fixed-rate loan commitments to sell, lend or borrow, fair values also consider the difference between current levels of
interest rates and committed rates (where applicable).
At December 31, 2013 and 2012, the fair values of the above financial instruments approximate the recorded amounts of
the related fees and were not considered to be material.
The following table sets forth the carrying amounts and estimated fair values of selected financial instruments based on
the assumptions described above used by the Company in estimating fair value at December 31, 2013:
Carrying
Amount
Fair
Value
December 31, 2013
Level 1
(in thousands)
Level 2
Level 3
$
33,485
$
33,485
$
33,485
$
-
$
-
756,156
261,634
425
3,434,178
46,025
-
2,081
2,985
756,156
261,634
425
3,502,792
46,025
-
2,081
2,985
-
-
-
-
-
-
-
-
756,156
237,476
-
-
46,025
-
2,081
-
-
24,158
425
3,502,792
-
-
-
2,985
Assets:
Cash and due from banks
Mortgage-backed
Securities
Other securities
Loans held for sale
Loans
FHLB-NY stock
Interest rate caps
Interest rate swaps
OREO
Total assets
$
4,536,969
$
4,605,583
$
33,485
$
1,041,738
$
3,530,360
Liabilities:
Deposits
Borrowings
Total liabilities
$
$
3,232,780
1,012,122
$
3,253,261
1,034,799
4,244,902
$
4,288,060
$
$
2,111,825
-
$
1,141,436
1,005,229
2,111,825
$
2,146,665
$
$
-
29,570
29,570
142
The following table sets forth the carrying amounts and estimated fair values of selected financial instruments based on
the assumptions described above used by the Company in estimating fair value at December 31, 2012:
Carrying
Amount
Fair
Value
December 31, 2012
Level 1
(in thousands)
Level 2
Level 3
$
40,425
$
40,425
$
40,425
$
-
$
-
720,113
229,453
5,313
3,234,121
42,337
19
3
5,278
720,113
229,453
5,313
3,416,313
42,337
19
3
5,278
-
-
-
-
-
-
-
-
696,638
213,374
-
-
42,337
19
3
-
23,475
16,079
5,313
3,416,313
-
-
-
5,278
Assets:
Cash and due from banks
Mortgage-backed
Securities
Other securities
Loans held for sale
Loans
FHLB-NY stock
Interest rate caps
Interest rate swaps
OREO
Total assets
$
4,277,062
$
4,459,254
$
40,425
$
952,371
$
3,466,458
Liabilities:
Deposits
Borrowings
Interest rate swaps
$
3,015,193
948,405
1,922
$
3,057,152
992,069
1,922
$
1,761,964
-
-
$
1,295,188
968,147
1,922
$
Total liabilities
$
3,965,520
$
4,051,143
$
1,761,964
$
2,265,257
$
-
23,922
-
23,922
143
19. Derivative Financial Instruments
At December 31, 2013 and 2012, the Company’s derivative financial instruments consist of purchased options and
swaps. The purchased options are used to mitigate the Company’s exposure to rising interest rates on its financial
liabilities without stated maturities. The Company’s swaps are used to mitigate the Company’s exposure to rising interest
rates on a portion ($18.0 million) of its floating rate junior subordinated debentures that have a contractual value of $61.9
million. Additionally, the Company at times may use swaps to mitigate the Company’s exposure to rising interest rates
on its fixed rate loans.
At December 31, 2013, derivatives with a combined notional amount of $118.0 million are not designated as hedges and
derivatives with a combined notional amount of $11.2 million are designated as fair value hedges. At December 31,
2012, derivatives with a combined notional amount of $118.0 million were not designated as hedges and a derivative
with a notional amount of $4.3 million was designated as fair value hedge. Changes in the fair value of the derivatives
not designated as hedges are reflected in “Net gain/loss from fair value adjustments” in the Consolidated Statements of
Income. The portion of the changes in the fair value of the derivative designated as a fair value hedge which is
considered ineffective are reflected in “Net gain/loss from fair value adjustments” in the Consolidated Statements of
Income.
The following table sets forth information regarding the Company’s derivative financial instruments at December 31,
2013:
At or for the year ended December 31, 2013
Notional
Amount
Purchase Price
(In thousands)
Net Carrying
Value (1)
Interest rate caps (non-hedge)
Interest rate swaps (non-hedge)
Interest rate swaps (hedge)
Total derivatives
$
$
100,000
18,000
11,217
129,217
$
$
9,035
-
-
9,035
$
$
-
1,681
400
2,081
The following table sets forth information regarding the Company’s derivative financial instruments at December 31,
2012:
At or for the year ended December 31, 2012
Notional
Amount
Purchase Price
(In thousands)
Net Carrying
Value (1)
Interest rate caps (non-hedge)
Interest rate swaps (non-hedge)
Interest rate swaps (hedge)
Total derivatives
$
$
100,000
18,000
4,300
122,300
$
$
9,035
-
-
9,035
$
$
19
(1,922)
3
(1,900)
(1) Derivatives in a net positive position are recorded as “Other assets” and derivatives in a net negative position are recorded as
“Other liabilities” in the Consolidated Statements of Financial Condition. There were no unrealized losses on derivative financial
instruments at December 31, 2013.
144
The following table sets forth the effect of derivative instruments on the Consolidated Statements of Income for the
periods indicated:
(In thousands)
Financial Derivatives:
Interest rate caps
Interest rate swaps
Net gain (loss) (1)
For the year ended
December 31,
2012
2011
2013
$
(18)
3,632
$
(337)
(1,927)
$
(2,153)
-
$
3,614
$
(2,264)
$
(2,153)
(1) Net gains (losses) are recorded as “Net gain (losses) from fair value adjustments” in the Consolidated Statements of Income.
20. New Authoritative Accounting Pronouncements
In April 2011, the FASB issued ASU No. 2011-03, which amends the authoritative accounting guidance under ASC
Topic 860 “Transfers and Servicing.” The amendments in this update remove from the assessment of effective control
(1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially
the agreed terms, even in the event of default by the transferee and (2) the collateral maintenance implementation
guidance related to that criterion. The amendments in this update are effective for the first interim or annual period
beginning on or after December 15, 2011 and should be applied prospectively to transactions or modifications of existing
transactions that occur on or after the effective date. Early adoption is not permitted. Adoption of this update did not
have a material effect on the Company’s consolidated results of operations or financial condition.
In May 2011, the FASB issued ASU No. 2011-04, which amends the authoritative accounting guidance under ASC
Topic 820 “Fair Value Measurement.” The amendments in this update clarify how to measure and disclose fair value
under ASC Topic 820. The amendments in this update are effective for the first interim or annual period beginning on or
after December 15, 2011 and should be applied prospectively to transactions or modifications of existing transactions
that occur on or after the effective date. Early adoption is not permitted. Adoption of this update did not have a material
effect on the Company’s consolidated results of operations or financial condition.
In June 2011, the FASB issued ASU No. 2011-05, which amends the authoritative accounting guidance under ASC
Topic 220 “Comprehensive Income.” The amendments eliminate the option to present components of other
comprehensive income in the statement of stockholders’ equity. Instead, the new guidance requires entities to present all
nonowner changes in stockholders’ equity either as a single continuous statement of comprehensive income or as two
separate but consecutive statements. The amendments in this update are effective for the first interim or annual period
beginning on or after December 15, 2011 and must be applied retrospectively. Early adoption was permitted. Adoption
of this update did not have a material effect on the Company’s consolidated results of operations or financial condition.
See the Consolidated Statements of Comprehensive Income.
In September 2011, the FASB issued ASU No. 2011-08, which amends the authoritative accounting guidance under
ASC Topic 350 “Intangibles – Goodwill and Other.” The amendments in the update permit an entity to first assess
qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its
carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test
described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent.
The amendments in this update are effective for annual and interim goodwill impairment tests performed for fiscal years
beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment
tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or
interim period have not yet been issued. Adoption of this update did not have a material effect on the Company’s
consolidated results of operations or financial condition.
145
In February 2013, the FASB issued ASU No. 2013-02, which amends the authoritative accounting guidance under ASC
Topic 220 “Comprehensive Income.” The amendments do not change the current requirements for reporting net income
or other comprehensive income in financial statements. However, the amendments require an entity to provide
information about the amounts reclassified out of accumulated other comprehensive income by component. In addition,
an entity is required to present, either on the face of the statement where net income is presented or in the notes,
significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net
income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the
same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net
income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail
about those amounts. The amendments in this update are effective prospectively for reporting periods beginning after
December 15, 2013. Early adoption is permitted. Adoption of this update is did not have a material effect on the
Company’s consolidated results of operation or financial condition. (See Note 13 of Notes to Consolidated Financial
Statements “Stockholders’ Equity”.)
In January 2014, the FASB issued ASU 2014-04 to clarify that when an in substance repossession or foreclosure
occurs, a creditor is considered to have received physical possession of residential real estate property collateralizing a
consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon
completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor
to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally,
the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate
property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential
real estate property that are in the process of foreclosure according to local requirements of the applicable
jurisdiction. ASU 2014- 04 is effective for annual reporting periods beginning after December 15, 2014. Adoption of
this update is not expected to have a material effect on the Company’s consolidated results of operations or financial
condition.
21. Quarterly Financial Data (unaudited)
Selected unaudited quarterly financial data for the fiscal years ended December 31, 2013 and 2012 is presented below:
Quarterly operating data:
Interest income
Interest expense
Net interest income
Provision for loan losses
Other operating income
Other operating expense
Income before income
tax expense
Income tax expense
Net income
Basic earnings per common share
Diluted earnings per common share
Dividends per common share
4th
3rd
2nd
1st
4th
3rd
2nd
1st
2013
2012
(In thousands, except per share data)
$
$
50,294
13,058
37,236
1,000
1,064
18,894
18,406
6,458
11,948
$0.40
$0.40
$0.13
$
$
49,851
12,866
36,985
3,435
945
19,050
15,445
6,024
9,421
$0.32
$0.32
$0.13
$
$
50,295
12,999
37,296
3,500
2,199
20,213
15,782
6,155
9,627
$0.32
$0.32
$0.13
$
$
50,086
15,940
34,146
6,000
5,348
22,419
11,075
4,319
6,756
$0.22
$0.22
$0.13
$
51,722
14,498
37,224
5,000
2,566
19,808
$
53,193
15,610
37,583
5,000
3,513
20,743
$
54,384
16,097
38,287
5,000
1,108
20,239
$
54,415
17,070
37,345
6,000
1,878
21,536
14,982
5,782
9,200
$
15,353
5,988
9,365
$
14,156
5,519
8,637
$
11,687
4,558
7,129
$
$0.30
$0.30
$0.13
$0.31
$0.31
$0.13
$0.28
$0.28
$0.13
$0.23
$0.23
$0.13
Average common shares outstanding for:
Basic earnings per share
Diluted earnings per share
29,762
29,802
29,773
29,805
30,213
30,235
30,449
30,481
30,310
30,340
30,432
30,462
30,472
30,492
30,396
30,420
146
22. Parent Company Only Financial Information
Earnings of the Bank are recognized by the Holding Company using the equity method of accounting. Accordingly,
earnings of the Bank are recorded as increases in the Holding Company’s investment, any dividends would reduce the
Holding Company’s investment in the Bank, and any changes in the Bank’s unrealized gain or loss on securities
available for sale, net of taxes, would increase or decrease, respectively, the Holding Company’s investment in the Bank.
The condensed financial statements for the Holding Company are presented below:
Condensed Statements of Financial Condition
Assets:
Cash and due from banks
Securities available for sale:
Other securities ($2,562 and $2,359 at fair value pursuant to
the fair value option at December 31, 2013 and 2012, respectively)
Interest receivable
Investment in subsidiaries
Goodwill
Other assets
Total assets
Liabilities:
Borrowings (at fair value pursuant to the fair value option
at December 31, 2013 and 2012)
Other liabilities
Total liabilities
Stockholders' Equity:
Preferred stock
Common stock
Additional paid-in capital
Treasury stock, at average cost (1,407,343 shares and 787,266 at
December 31, 2013 and 2012, respectively)
Retained earnings
Accumulated other comprehensive income, net of taxes
Total equity
Total liabilities and equity
Condensed Statements of Income
Dividends from the Bank
Interest income
Interest expense
Gain on sale of securities
Net (loss) gain from fair value adjustments
Other operating expenses
Income before taxes and equity in undistributed
earnings of subsidiary
Income tax (expense) benefit
Income before equity in undistributed earnings of subsidiary
Equity in undistributed earnings of the Bank
Net income
147
December 31,
2013
December 31,
2012
(Dollars in thousands)
$
16,525
$
21,041
$
$
$
$
2,849
4
449,580
2,185
4,354
475,497
29,570
13,395
42,965
-
315
201,902
(22,053)
263,743
(11,375)
432,532
3,165
13
451,190
2,185
4,418
482,012
23,923
15,724
39,647
-
315
198,314
(10,257)
241,856
12,137
442,365
$
475,497
$
482,012
2013
For the years ended December 31,
2012
(In thousands)
2011
$
$
20,000
590
(1,066)
17
(5,475)
(621)
13,445
2,857
16,302
21,450
37,752
$
$
20,000
694
(2,957)
-
1,991
(730)
18,998
498
19,496
14,835
34,331
$
$
20,000
753
(4,325)
-
5,725
(746)
21,407
(585)
20,822
14,526
35,348
2013
For the years ended December 31,
2012
(In thousands)
2011
$
37,752
$
34,331
$
35,348
(21,450)
(17)
(2,348)
5,475
3,068
1,746
24,226
(23)
517
494
(14,151)
(15,618)
533
(29,236)
(4,516)
21,041
16,525
$
(14,835)
-
858
(1,991)
3,105
1,287
22,755
(29)
-
(29)
(5,622)
(15,817)
956
(20,483)
2,243
18,798
21,041
$
(14,526)
-
3,003
(5,726)
2,720
1,542
22,361
(37)
-
(37)
(7,722)
(15,910)
2,040
(21,592)
732
18,066
18,798
Condensed Statements of Cash Flows
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed earnings of the Bank
Net gain on sale of securities
Deferred income tax provision
Fair value adjustments for financial assets and
financial liabilities
Stock based compensation expense
Net change in operating assets and liabilities
Net cash provided by operating activities
Investing activities:
Purchases of securities available for sale
Proceeds from sales and calls of securities available for sale
Net cash provided by (used in) investing activities
Financing activities:
Purchase of treasury stock
Cash dividends paid
Stock options exercised
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
$
148
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Flushing Financial Corporation
We have audited the accompanying consolidated statements of financial condition of Flushing Financial Corporation (a
Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2013 and 2012, and the related
consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of
the three years in the period ended December 31, 2013. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Flushing Financial Corporation and subsidiaries as of December 31, 2013 and 2012, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2013, in conformity with
accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company’s internal control over financial reporting as of December 31, 2013, based on criteria established in
the 1992 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) and our report dated March 17, 2014 expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
New York, New York
March 17, 2014
149
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Flushing Financial Corporation
We have audited the internal control over financial reporting of Flushing Financial Corporation (a Delaware corporation)
and subsidiaries (the "Company") as of December 31, 2013, based on criteria established in the 1992 Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2013, based on criteria established in the 1992 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements of the Company as of and for the year ended December 31, 2013, and our
report dated March 17, 2014 expressed an unqualified opinion on those financial statements.
/s/ GRANT THORNTON LLP
New York, New York
March 17, 2014
150
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
The Company carried out, under the supervision and with the participation of the Company's management,
including its Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this Annual Report. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as of December 31, 2013, the design and operation of
these disclosure controls and procedures were effective. During the period covered by this Annual Report, there have
been no changes in the Company's internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting,
and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31,
2013. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the
Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal
executive and principal financial officers and effected by the Company’s Board of Directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. Internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Management performed an assessment of the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2013 based upon criteria in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) (“COSO”). Based on this
assessment, management concluded that the Company’s internal control over financial reporting was effective as of
December 31, 2013 based on those criteria issued by COSO.
Grant Thornton LLP, the Company’s independent registered public accounting firm that audited the Company’s
consolidated financial statements included in this Annual Report on Form 10-K, has issued a report on the effectiveness
of the Company’s internal control over financial reporting as of December 31, 2013, as stated in its report which appears
on page 150.
Item 9B. Other Information.
None.
151
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Other than the disclosures below, information regarding the directors and executive officers of the Company
appears in the Company’s Proxy Statement for the Annual Meeting of Stockholders to be held May 20, 2014 (“Proxy
Statement”) under the captions “Board Nominees,” “Continuing Directors,” “Executive Officers Who Are Not
Directors” and “Meeting and Committees of the Board of Directors – Audit Committee” and is incorporated herein by
this reference. Information regarding Section 16(a) beneficial ownership appears in the Company’s Proxy Statement
under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by this
reference.
Code of Ethics. The Company has adopted a Code of Business Conduct and Ethics that applies to all of its
the Company’s website at:
directors, officers and employees. This code
https://www.snl.com/Cache/1001183751.PDF?Y=&O=PDF&D=&FID=1001183751&T=&IID=102398
Any substantive amendments to the code and any grant of a waiver from a provision of the code requiring disclosure
under applicable SEC or NASDAQ rules will be disclosed in a report on Form 8-K.
is publicly available on
Audit Committee Financial Expert. The Board of Directors of the Company has determined that Louis C.
Grassi, the Chairman of the Audit Committee, is an “audit committee financial expert” as defined under Item 401(h) of
Regulation S-K, and that he is independent as defined under applicable NASDAQ listing standards. Mr. Grassi is a
certified public accountant and a certified fraud examiner.
Item 11. Executive Compensation.
Information regarding executive compensation appears in the Proxy Statement under the caption “Executive
Compensation” and is incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information regarding security ownership of certain beneficial owners appears in the Proxy Statement under the
caption “Stock Ownership of Certain Beneficial Owners” and is incorporated herein by this reference.
Information regarding security ownership of management appears in the Proxy Statement under the caption
“Stock Ownership of Management” and is incorporated herein by this reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information regarding certain relationships and related transactions and directors independence appears in the
Proxy Statement under the captions “Compensation Committee Interlocks and Insider Participation” and “Related Party
Transactions” and is incorporated herein by this reference.
Item 14. Principal Accounting Fees and Services.
Information regarding fees paid to the Company’s independent auditor appears in the Proxy Statement under the
caption “Schedule of Fees to Independent Auditors” and is hereby incorporated by this reference.
152
Item 15. Exhibits, Financial Statement Schedules.
(a) 1. Financial Statements
PART IV
The following financial statements are included in Item 8 of this Annual Report and are incorporated herein by
this reference:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Consolidated Statements of Financial Condition at December 31, 2013 and 2012
Consolidated Statements of Income for each of the three years in the period ended December 31, 2013
Consolidated Statements of Comprehensive Income for each of the three years in the period ended
December 31, 2013
Consolidated Statements of Changes in Stockholders’ Equity for each of the three years in the period
ended December 31, 2013
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31,
2013
(cid:120) Notes to Consolidated Financial Statements
(cid:120)
Report of Independent Registered Public Accounting Firm
2. Financial Statement Schedules
Financial Statement Schedules have been omitted because they are not applicable or the required information is
shown in the Consolidated Financial Statements or Notes thereto included in Item 8 of this Annual Report and are
incorporated herein by this reference.
153
3.
Exhibits Required by Securities and Exchange Commission Regulation S-K
Exhibit
Number
Description
2.1
3.1
3.2
3.3
3.4
3.5
3.6
3.7
4.1
4.2
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12
Agreement and Plan of Merger dated as of December 20, 2005 by and between Flushing Financial Corporation
and Atlantic Liberty Financial Corp. (10)
Certificate of Incorporation of Flushing Financial Corporation (1)
Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (5)
Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (19)
Certificate of Designations of Series A Junior Participating Preferred Stock of Flushing Financial
Corporation (6)
Certificate of Increase of Shares Designated as Series A Junior Participating Preferred Stock of Flushing
Financial Corporation (13)
Amended and Restated By-Laws of Flushing Financial Corporation (22)
Certificate of Designation relating to the Fixed Rate Cumulative Perpetual Preferred Stock Series B (14)
Rights Agreement, dated as of September 8, 2006, between Flushing Financial Corporation and Computershare
Trust Company N.A., as Rights Agent, which includes the form of Certificate of Increase of Shares Designated
as Series A Junior Participating Preferred Stock as Exhibit A, form of Right Certificate as Exhibit B and the
Summary of Rights to Purchase Preferred Stock as Exhibit C (12)
Flushing Financial Corporation has outstanding certain long-term debt. None of such debt exceeds ten percent of
Flushing Financial Corporation’s total assets; therefore, copies of constituent instruments defining the rights of
the holders of such debt are not included as exhibits. Copies of instruments with respect to such long-term debt
will be furnished to the Securities and Exchange Commission upon request.
Form of Amended and Restated Employment Agreement between Flushing Bank and
Certain Officers (20)
Form of Amended and Restated Employment Agreement between Flushing Financial Corporation and
Certain Officers (20)
Amended and Restated Employment Agreement between Flushing Financial Corporation and John R.
Buran (20)
Amended and Restated Employment Agreement between Flushing Bank and John R. Buran (20)
Amended and Restated Employment Agreement between Flushing Financial Corporation and Maria A. Grasso
(20)
Amended and Restated Employment Agreement between Flushing Bank and Maria A. Grasso (20)
Flushing Bank Specified Officer Change in Control Severance Policy (16)
Amended and Restated Employee Severance Compensation Plan of Flushing Bank (4)
Amended and Restated Outside Director Retirement Plan (11)
Amended and Restated Flushing Bank Outside Director Deferred Compensation Plan (4)
Amended and Restated Flushing Bank Supplemental Savings Incentive Plan (15)
Form of Indemnity Agreement among Flushing Bank, Flushing Financial Corporation, and each Director (2)
10.13
Form of Indemnity Agreement among Flushing Bank, Flushing Financial Corporation, and Certain Officers (2)
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
Employee Benefit Trust Agreement (1)
Amendment to the Employee Benefit Trust Agreement (3)
Loan Document for Employee Benefit Trust (1)
Guarantee by Flushing Financial Corporation (1)
1996 Restricted Stock Incentive Plan of Flushing Financial Corporation (8)
1996 Stock Option Incentive Plan of Flushing Financial Corporation (7)
Description of Outside Director Fee Arrangements (15)
Form of Outside Director Restricted Stock Award Letter (9)
Form of Outside Director Restricted Stock Unit Award Letter (19)
Form of Outside Director Stock Option Grant Letter (9)
Form of Employee Restricted Stock Award Letter (9)
Form of Employee Restricted Stock Unit Award Letter (filed herewith)
Form of Employee Stock Option Award Letter (9)
Amended and Restated Flushing Financial Corporation 2005 Omnibus Incentive Plan (17)
154
10.28
10.29*
10.30
10.31
21.1
23.1
31.1
31.2
32.1
32.2
Amendment to Flushing Financial Corporation 2005 Omnibus Incentive Plan (18)
Annual Incentive Plan for Executives and Senior Officers (19)
Form of Amendment to Employee Stock Option Award Letter (21)
Form of Amendment to Director Stock Option Award Letter (21)
Subsidiaries information incorporated herein by reference to Part I – Subsidiary Activities
Consent of Independent Registered Public Accounting Firm
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed
herewith)
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed
herewith)
Certification Pursuant to 18 U.S.C, Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (furnished herewith)
Certification Pursuant to 18 U.S.C, Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (furnished herewith)
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Instance Document (filed herewith)
XBRL Taxonomy Extension Schema Document (filed herewith)
XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)
XBRL Taxonomy Extension Label Linkbase Document (filed herewith)
XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)
*Indicates compensatory plan or arrangement.
_______________
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1 filed September 1, 1995,
Registration No. 33-96488.
Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended September 30, 1996.
Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 1997.
Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended September 30, 2000.
Incorporated by reference to Exhibits filed with Form S-8 filed May 31, 2002.
Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended September 30, 2002.
Incorporated by reference to Exhibit filed with Form 10-K for the year ended December 31, 2003.
Incorporated by reference to Exhibit filed with Form 10-Q for the quarter ended June 30, 2004.
Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 2004.
Incorporated by reference to Exhibit filed with Form 8-K filed December 23, 2005.
Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended March 31, 2006.
Incorporated by reference to Exhibit filed with Form 8-K filed September 11, 2006.
Incorporated by reference to Exhibit filed with Form 8-K filed September 26, 2006.
Incorporated by reference to Exhibits filed with Form 8-K filed December 23, 2008.
Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 2008.
Incorporated by reference to Exhibit filed with Form 10-Q for the quarter ended June 30, 2011.
Incorporated by reference to Appendices filed with Proxy Statement on Schedule 14A filed April 7, 2011.
Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended September 30, 2011.
Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 2011.
Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended June 30, 2013.
Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 2012.
Incorporated by reference to Exhibits filed with Form 8-K filed December 18, 2013.
155
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the Company has duly
caused this report, or amendment thereto, to be signed on its behalf by the undersigned, thereunto duly authorized, in
New York, New York, on March 17, 2014.
SIGNATURES
FLUSHING FINANCIAL CORPORATION
By
/S/JOHN R. BURAN
John R. Buran
President and CEO
POWER OF ATTORNEY
We, the undersigned directors and officers of Flushing Financial Corporation (the “Company”) hereby severally
constitute and appoint John R. Buran and David Fry as our true and lawful attorneys and agents, each acting alone and
with full power of substitution and re-substitution, to do any and all things in our names in the capacities indicated below
which said John R. Buran or David Fry may deem necessary or advisable to enable the Company to comply with the
Securities Exchange Act of 1934, and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the report on Form 10-K, or amendment thereto, including specifically, but not limited
to, power and authority to sign for us in our names in the capacities indicated below the report on Form 10-K, or
amendment thereto; and we hereby approve, ratify and confirm all that said John R. Buran or David Fry shall do or cause
to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K, or amendment
thereto, has been signed by the following persons in the capacities and on the dates indicated.
Signature
Title
Date
/S/JOHN R. BURAN
John R. Buran
/S/JOHN E. ROE, SR.
John E. Roe, Sr.
/S/DAVID FRY
David Fry
/S/ JAMES D. BENNETT
James D. Bennett
/S/STEVEN J. D'IORIO
Steven J. D'Iorio
Director, President (Principal Executive
Officer)
March 4, 2014
Director, Chairman
March 4, 2014
Treasurer (Principal Financial and
Accounting Officer)
March 4, 2014
Director
March 4, 2014
Director
156
March 4, 2014
March 4, 2014
March 4, 2014
March 4, 2014
March 4, 2014
March 4, 2014
March 4, 2014
March 4, 2014
March 4, 2014
/S/LOUIS C. GRASSI
Louis C. Grassi
/S/SAM S. HAN
Sam S. Han
/S/MICHAEL J. HEGARTY
Michael J. Hegarty
/S/JOHN J. MCCABE
John J. McCabe
/S/VINCENT F. NICOLOSI
Vincent F. Nicolosi
/S/DONNA M. O'BRIEN
Donna M. O'Brien
/S/MICHAEL J. RUSSO
Michael J. Russo
/S/THOMAS S. GULOTTA
Thomas S. Gulotta
Director
Director
Director
Director
Director
Director
Director
Director
157
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Corporate Information
Executive and Senior Management
Shareholder Information
John R. Buran
President & Chief Executive Officer
David W. Fry
Senior Executive Vice President,
Treasurer & Chief Financial Officer
Maria A. Grasso
Senior Executive Vice President,
Chief Operating Officer &
Corporate Secretary
Francis W. Korzekwinski
Senior Executive Vice President,
Chief of Real Estate Lending
Ronald M. Hartmann
Executive Vice President,
Director of Commercial
Real Estate Lending
Jeoung Yun Jin
Executive Vice President,
Director of Residential &
Mixed-Use Lending
Theresa Kelly
Executive Vice President,
Director of Business Banking
John F. Stewart
Executive Vice President,
Chief of Staff
Barbara A. Beckmann
Senior Vice President,
Director of Operations
Michael Bingold
Senior Vice President,
Director of Distribution and
Client Development
Allen M. Brewer
Senior Vice President,
Chief Information Officer
Astrid Burrowes
Senior Vice President,
Controller
Caterina dePasquale
Senior Vice President,
Director of Strategic Development
& Delivery
Ruth E. Filiberto
Senior Vice President,
Director of Human Resources
Robert G. Kiraly
Senior Vice President,
Chief Auditor
Gary P. Liotta
Senior Vice President,
Chief Risk Officer
Patricia Mezeul
Senior Vice President,
Director of Government Banking
W. Jeffrey Weichsel
Senior Vice President,
Chief Investment Officer
Board of Directors
Annual Meeting
The Annual Meeting of Shareholders of
Flushing Financial Corporation will be
held at 2:00 PM, May 20, 2014, at:
LaGuardia Marriott
102-05 Ditmars Boulevard
East Elmhurst, New York 11369
Stock Listing
NASDAQ Global Select MarketSM
Symbol “FFIC”
Transfer Agent
and Registrar
Computershare Trust Company NA
P.O. Box 30170
College Station, Texas
77842-3170
800-426-5523
www.Computershare.com
Independent Registered Public Accounting Firm
Grant Thornton LLP
60 Broad Street
New York, New York 10004
212-422-1000
Legal Counsel
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
212-837-6000
Shareholder Relations
David W. Fry
718-961-5400
John E. Roe, Sr.
Chairman of the Board
Retired Chairman of
City Underwriting Agency, Inc.
Gerard P. Tully, Sr.†
Chairman Emeritus
President Real Estate
Development & Management
John R. Buran
President &
Chief Executive Officer
†
Deceased
James D. Bennett
Attorney in Nassau County,
New York
Sam S. Han
Founder and President of the
Korean Channel, Inc.
Michael J. Hegarty
Former President &
Chief Executive Officer
John J. McCabe
Chief Equity Strategist of
Shay Assets Management
Steven J. D’Iorio
Senior Vice President
Jones, Lang, LaSalle
Louis C. Grassi
Managing Partner and
Chief Executive Officer
of Grassi & Co.
Thomas S. Gulotta
Special Counsel,
Albanese & Albanese
CEO Executive Strategies, LLC
Vincent F. Nicolosi
Attorney in Manhasset, New York
Donna M. O’Brien
President
Strategic Visions in
Healthcare, LLC
Michael J. Russo
Consulting Engineer, CEO,
Fresh Meadow Mechanical Corp.
and President and Director of
Operations for Northeastern
Aviation Corp.
Flushing Bank
1979 Marcus Avenue, Suite E140, Lake Success, New York 11042
718-961-5400 facsimile 516-358-4385
www.flushingbank.com
Manhattan
Nassau
Queens
Brooklyn
Locations
Flushing
144-51 Northern Boulevard
159-18 Northern Boulevard
188-08 Hollis Court Boulevard
44-43 Kissena Boulevard
136-41 Roosevelt Avenue
Astoria
31-16 30th Avenue
Bayside
61-54 Springfield Boulevard
42-11 Bell Boulevard
Brooklyn
7102 Third Avenue
186 Montague Street
1402 Avenue J
217 Havemeyer Street
4616 13th Avenue
Forest Hills
107-11 Continental Avenue
Manhattan
225 Park Avenue South
New Hyde Park
661 Hillside Avenue
Garden City
1122 Franklin Avenue
Business Banking Division
225 Park Avenue South
New York, New York 10003
212-477-9424
Government Banking Division
1979 Marcus Avenue, Suite E140
Lake Success, New York 11042
888-600-3722
iGObanking.com®
1979 Marcus Avenue, Suite C103
Lake Success, New York 11042
888-432-5890
www.iGObanking.com
Real Estate Lending
144-51 Northern Boulevard
Flushing, New York 11354
718-961-5400
Annual Report Design by
Curran & Connors, Inc. / www.curran-connors.com
© 2014 Flushing Financial Corporation. All rights reserved.
BRO-ANRPT-0414